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2007

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CHINESE RETAIL BUYER-SELLER
INITIATION AND MAINTENANCE OF RELATIONSHIPS

presented by
Zhengyi Chen

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CHINESE RETAIL BUYER-SELLER
INITIATION AND MAINTENANCE OF RELATIONSHIPS

By

Zhengyi Chen

A DISSERTATION

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Advertising, Public Relations, & Retailing
Specialized in Retailing

2006

ABSTRACT

CHINESE RETAIL BUYER-SELLER
INITIATION AND MAINTENANCE OF RELATIONSHIPS

By

Zhengyi Chen

Three deficiencies in distribution channel research have been identified: 1)
research on the process of relationship evolution; 2) research on the long-term orientation
in foreign marketing channels (e.g. China); and 3) research from a distributor's
perspective.

The aim of this study was to evaluate two theoretical models in the context of the
Chinese market. The more specific goal of this study was to investigate how buyer-seller
long-term relationships are initiated and maintained in the Chinese food retailer and
supplier distribution channel, all from a buyer’s perspective. The research question,
therefore, is twofold: 1) What are the relationships among these variables at the retailer-
supplier initiation stage; and 2) do these relationships change as the buyer and seller
move into the maintenance stage? Because large-sample, firm-level data are very difficult
to collect in China, a convenience sample was collected. Path analysis (LISREL 8.20)
was used for model and hypothesis testing.

We discovered that only eight of the twenty-one relationships among the
constructs remain the same at the two stages of the relationship, initiation and
maintenance: 1) Role performance remained positively related to economic satisfaction
and social satisfaction. 2) Role performance remained positively related to credibility

trust. 3) Benevolence trust and credibility trust were found to be positively correlated. 4)

Credibility trust was found to be positively related to long-term orientation. 5)
Benevolence trust was not related to long-term orientation. 6) Opportunism was
negatively related to social satisfaction. 7) Social satisfaction was not related to long-term
orientation.

Differences between the two stages were: 1) Role performance was found to be
positively related to benevolence trust at the relationship initiation stage, but not at the
maintenance stage. 2) Economic satisfaction was not related to benevolence trust at the
relationship initiation stage, but was at the maintenance stage. 3) Social satisfaction was
positively related to credibility trust at the relationship initiation stage, but not at the
maintenance stage. 4) Economic satisfaction and social satisfaction were positively
correlated at the initiation stage, but not at the maintenance stage. 5) Opportunism was
found to be negatively related both to benevolence trust and credibility trust at the
relationship initiation stage, but not at the maintenance stage. 6) Economic satisfaction
was positively related to long-term orientation at the relationship initiation stage, but not
at the maintenance stage. 7) Guanxi behaved differently at the two stages; not only did it
appear to associate with different variables, but also its effects had opposite signs at the
two stages; at the long-term relationship initiation stage, guanxi was noted to be
negatively related to social satisfaction and long-term orientation but, at the maintenance
stage, positively related to economic satisfaction. 8) Dependence asymmetry was
discovered to have a moderator effect on the relationship between a seller’s role
performance and social satisfaction at the long-term relationship initiation stage, but not
at the maintenance stage. 9) Dependence was positively related to long-term orientation

at the long-term relationship initiation stage, but not at the maintenance stage.

Dedicated to Lucas and Jun

iv

ACKNOWLEDGMENTS

Completion of my doctoral degree would not have been possible without the
support of several significant individuals. I would like to first thank Dr. Brenda
Stemquist, my Academic Advisor and Chair of my Doctoral Committee. I have grown
significantly as a researcher and academician thanks to her guidance, support and
encouragement. I also want to thank Dr. Linda Good, Dr. Patricia Huddleston and Dr.
Cornelia Drbge for being wonderful mentors throughout my doctoral program. I could
not have asked for a better or more fulfilling doctoral experience than I received in the
Merchandising Management Program.

I cannot thank life enough for bringing me the most wonderful friends! Liu
Yinghui, Ouyang Zheng, Xuan Jun, Hu Simin, Duan Baofu, Lu Yan, Chang Peng, Xu
Yan, Lu Lingfeng, Hong Rui, thank you for sharing with me such a loyal friendship. And
for all my dear friends, thank you all for creating a positive and uplifting friendship circle
and being my cheerleaders whenever needed. My life is so blessed with all of you!

As always, the past years’ journey would not have been successful without the
support from my family. My husband Jun has sacrificed much for me to work on this
degree. My son Lucas’ coming to this world lightens up my life and gives me strength to
move on during my most difficult times. My parents and parents-in-law, my brother and
sisters, I can never tell you how much your love means to me.

Finally, I would like to thank a group of my fellow doctoral students and
classmates for their support, friendship, and encouragement. Thanks to Linda Niehm,
Ling Shushian, Huang Ying, SoJung Lee, Jongpil Yu, Kumiko Osajima, and Sonmez

Elif.

TABLE OF CONTENTS

Page
LIST OF FIGURES ......................................................................................................... viii
LIST OF TABLES ............................................................................................................. ix
CHAPTER 1. INTRODUCTION ....................................................................................... 1
Significance of the Study ......................................................................................... 1
Problem Statement ................................................................................................... 2
Long-term Relationship Initiation Stage and Maintenance Stage ........................... 5
Theoretical Models ...................................................................................... 5
Empirical Results ......................................................................................... 7
CHAPTER 2. LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK ........... 11
Satisfaction ............................................................................................................. 12
Outcomes of Supplier’s Role Performance: Economic Satisfaction and
Social Satisfaction ...................................................................................... 13
Trust ....................................................................................................................... 15
Outcomes of Supplier’s Role Performance: Benevolence Trust and
Credibility Trust ......................................................................................... 17
Outcome of Satisfaction: Trust .................................................................. l9
Opportunism .......................................................................................................... 21
Effect of Opportunism on Benevolence Trust and Credibility Trust ......... 22
Effect of Opportunism on Social Satisfaction ........................................... 24
Long-term Orientation ........................................................................................... 25
Antecedent of Long-term Orientation: Credibility Trust ........................... 26
Antecedents of Long-term Orientation: Economic Satisfaction and Social
Satisfaction ................................................................................................. 29
Effect of Opportunism on Long-term Orientation ..................................... 31
Guanxi and Guanxi Practice .................................................................................. 31
Guanxi Practice at the Relationship Initiation Stage ................................. 37
Guanxi Practice at the Relationship Maintenance Stage ........................... 38
Power/Dependence Asymmetry ............................................................................. 39
The Moderator Role of Power/Dependence Asymmetry ........................... 4O
Antecedent of Lon g-term Orientation: Dependence .................................. 43
Rival Models .......................................................................................................... 44
Summary ................................................................................................................ 45
CHAPTER 3. METHODOLOGY .................................................................................... 49
Instrumentation ...................................................................................................... 49
Measures ................................................................................................................ 50
Data Collection ...................................................................................................... 50
Sampling Reality: Convenience Data ........................................................ 50

vi

Sample Characteristics ............................................................................... 51

Data Analysis ......................................................................................................... 51
Overall Model Fitting ................................................................................ 52

Model Testing and Estimation Procedure for the Small Sample ............... 53

CHAPTER 4. RESULTS ................................................................................................... 57
Overall Fit of the Models ....................................................................................... 57
Hypothesis Testing ................................................................................................. 58
Satisfaction ................................................................................................. 58

Trust ........................................................................................................... 58

Opportunism .............................................................................................. 60

Long-term Orientation ............................................................................... 61

Guanxi Practice .......................................................................................... 62
Power/Dependence .................................................................................... 62

CHAPTER 5. DISCUSSION ............................................................................................. 69
Satisfaction ............................................................................................................. 71

Trust ....................................................................................................................... 73
Benevolence Trust ..................................................................................... 73

Credibility Trust ......................................................................................... 74

The Correlations between Two Types of Satisfaction and Two types of Trust ..... 78
Opportunism .......................................................................................................... 79
Long-term Orientation ........................................................................................... 81
Benevolence Trust and Credibility Trust ................................................... 81

Economic Satisfaction and Social Satisfaction .......................................... 82

Guanxi and Guanxi Practice .................................................................................. 83
Dependence and Dependence Asymmetry ............................................................ 85
Dependence ................................................................................................ 85

Dependence Asymmetry ............................................................................ 88

CHAPTER 6. CONCLUSION ........................................................................................... 92
Managerial Implications ........................................................................................ 94
Limitations ............................................................................................................. 95
Directions for Future Research .............................................................................. 96
NOTES ............................................................................................................................... 97
APPENDIX ........................................................................................................................ 98
Response Formats and Items ................................................................................. 98
REFERENCES ................................................................................................................ lOl

vii

Figure 1.

Figure 2.

Figure 3.

Figure 4.

Figure 5.

LIST OF FIGURES
Page

Comparison of the Long-term Relationship Initiation Stage and Maintenance
Stage to Other Models ..................................................................................... 10

Buyer-Seller Relationship Initiation in the Chinese Distribution Channel —
Initiation Phase ................................................................................................. 47

Buyer-Seller Relationship Maintenance in the Chinese Distribution Channel —
Maintenance Phase ........................................................................................... 48

Buyer-Seller Relationship Initiation in the Chinese Distribution Channel -
Initiation Phase (Results) ................................................................................. 90

Buyer-Seller Relationship Maintenance in the Chinese Distribution Channel —
Maintenance Phase (Results) ........................................................................... 91

viii

Table 1.

Table 2.

Table 3.

Table 4.

LIST OF TABLES

Page
Results of the Path Analysis for the Relationship Initiation Stage ..................... 65
Results of the Path Analysis for the Relationship Maintenance Stage ............... 66

Dependence Asymmetry’s Effect on the Relationship between the Supplier’s
Role Performance and the Retailer’s Economic Satisfaction ............................. 67

Dependence Asymmetry’s Effect on the Relationship between the Supplier’s
Role Performance and the Retailer’s Social Satisfaction ................................... 68

ix

CHAPTER 1

INTRODUCTION

Significance of the Study

Since the late 19803, a move in industrial markets from adversarial relationships
focusing on a single exchange to collaborative partnerships focusing on building long-
terrn relationships through nonmarket modes of governance (such as trust) has been
documented in business publications (e.g., Davis, 1989; Emshwiller, 1991). In recent
years, networks and relationship building have become critical for the survival and
success of organizations around the world. For the last decade, leading marketing
academics have advocated the adoption of a relational exchange model as a means of
obtaining superior company sales and financial performance (e.g., El-Ansary, 1992;
Gassenheimer, Calantone, & Robicheaux, 1992; Rowe & Barnes, 1998; Spekman, 1988).
This relational exchange concept can be thought of as maintenance transfers of value
between independent channel members where interactions and associations of personnel
affect governance (Frazier, 1999). The advantage of establishing relational exchanges is
recognized by Rowe and Barnes (1998, p292), who noted that a company’s strategic
ability to develop long-term, committed, trusting associations with customers is “value
creating” because long-term relationships result in a “socially complex phenomenon” that
would be otherwise very difficult and costly to imitate.

In a retailing environment, retail buyers that have long-term relationships with
vendors can achieve a competitive advantage by receiving merchandise in short supply,
favorable delivery terms, information on new and best-selling products and competitive

activity, best allowable prices, and advertising and markdown allowances. Vendors that

have long-term relationships with retail buyers can achieve a competitive advantage by
obtaining information on best-selling products and competitive activity, better
c00perative advertising, and special displays for their merchandise (Ganesan, 1994).
Noordewier, John, and Nevin (1990) found that relational elements (such as long-term
orientation) enhance the performance outcomes in buyer-seller relationships. Anderson
and Weitz (1992) referred to such a long-term orientation in a buyer-seller relationship as
“commitment” and indicated that mutual commitment results in channel members
working together to serve customer needs more fully and increase mutual profitability.

Therefore, understanding how to form and maintain long-term relationships in
markets is an essential marketplace skill. This study evaluates two theoretical models in
the context of the Chinese market. Managerial implications will be presented to assist
western businesses in understanding Chinese channel relationships.
Problem Statement

Modern exchange relationships in industrial markets moved from adversarial
relationships focusing on a single exchange to collaborative partnerships focusing on
building long-term relationships (Davis, 1989; Emshwiller, 1991; Webster, 1992).
Consequently, in order to explain successful buyer-seller relationships, there was a
research paradigm shift in the marketing distribution channel research community from
relying only on dependence, power, conflict, and satisfaction concepts to relying on trust,
commitment, and long-term orientation concepts. This research shift was launched when
Dwyer, Schurr, & Oh (1987) introduced the relational contracting model (Macneil, 1978,
1980, 1981), which captured the rich nature of modern exchange relationships (Nevin,

1995).

Relationship marketing is characterized as a fundamental reshaping of the
marketing field (Webster, 1992) and as a paradigm shift that deserves both new theory
and language (Anderson, Hakansson, & Johanson, 1994; Nevin, 1995; Sheth &
Parvatiyar, 1995). Despite the enthusiastic attention paid to the importance of relationship
marketing, there has been little empirical research on business marketing that informs
academics and practitioners of the process through which industrial buyer-seller
relationships evolve over time (Wilson, 1995). It is both theoretically and
methodologically important to ascertain the stage of a relationship before performing a
causal analysis on it (Grayson & Ambler, 1999). For example, Garbarino and Johnson
(1999) found that, for a short-term relationship, satisfaction is directly related to
commitment, and for a long-term relationship, trust is the mediator between satisfaction
and commitment. J ap and Ganesan (2000) found that the effect of transaction-specific
investments on relationship commitment in manufacturer-retailer relationships is positive
in the exploration and the decline phases, but not in the maturity stage.

Furthermore, marketing channel researchers to date lack an understanding of
long-term orientation in foreign marketing channels; the element of long-term orientation
in the Chinese channel relationship is an example. There is little research on the retail
buyer-seller relationship in the Chinese distribution channel due to the fact that they have
only recently had professional retail buyers. Retail reform began in 1992; before that,
retailers in China were only manufacturers’ showrooms instead of assemblers of lines of
goods (Stemquist & Qiao, 1995). Since then, there have been only two studies that
focused on retail buyer behavior in China. Hu (1998) studied retail buying behavior

under varying ethical contexts in the Chinese market. She found that interpersonal

relationships are very important in Chinese retail buyers’ ethical decision-making. Zhang
(1999) studied the distribution channel for foreign branded apparel in China’s market
from a power perspective. He found that legitimate power sources I were regarded as the
major power base by Chinese apparel retailers when attributing power to their suppliers.
Retailers’ attitudes toward their suppliers were positively related to suppliers’ expert
power, referent power, and coercive power. Neither study investigated the formation and
maintenance of Chinese retail buyer-seller long-term relationships.

One more void in distribution channel research is addressed from the distributors’
viewpoint (Frazier, 1999). As Frazier (1999, p237) pointed out, although “channel
research has typically taken a manufacturer perspective, distributors play a crucial, often
defining, role in determining the type of channel relationship formed, and the degree to
which channel strategies are successful.” During the buyer-seller initiation stage and
during the process of the buyer’s establishment of a long-term orientation with its new
supplier, buyers and sellers are independent. In the first transaction they both make a
decision on whether or not to continue the relationship. In markets, usually it is the buyer
that ultimately makes the decision on whether or not to purchase from a seller. Thus,
even if the seller and buyer have different views regarding relationships, it is the buyer’s
view that is likely to be the determinant view (Cannon & Perreault, 1999).

To fill in these gaps, this study attempts to investigate how buyer-seller long-term
relationships are initiated and maintained in the Chinese food retailer and supplier
distribution channel from the buyers’ perspective. In this research, ten variables are
examined: Supplier’s role performance, Opportunism, guanxi practice, retailer’s

economic satisfaction, social satisfaction, benevolence trust, credibility trust, long-term

orientation, dependence, and dependence asymmetry within the relationship. The
research question is twofold: What are the relationships among these variables at the
retailer-supplier initiation stage, and do these relationships change at the maintenance
stage?
Long-term Relationship Initiation Stage and Maintenance Stage
Theoretical Models

Relationships go through phases characterized by distinct behaviors, processes,
and orientations (Thibaut & Kelley, 1959). Frazier (1983a) proposed a framework of
inter-organizational exchange behavior that attempts to describe and explain the
relationship process from the initiation to the implementation and review stage of
ongoing channel relationships. Dwyer, Schurr, and Oh (1987) presented a developmental
model of buyer-seller relationships that has served as a basis for the relationship
marketing area. This model is based on a model for the development of interpersonal,
primarily romantic relationships. Using marriage as an analogy, Dwyer et al. (1987)
described the evolution of buyer-seller relations to explain how discrete transactions
(casual dating) might progress into more durable associations (marriage) supported by
shared goals, planning, and commitment to the relationship. This durable association
(marriage) is a restrictive trade agreement. The buyer and seller (the two individuals)
agree to exchange only with one another at least until such time as the balance of trade
becomes unfavorable in terms of broader market considerations (McCall, 1966, p. 197-
198).

Dwyer et al.'s (1987) model is composed of five stages. They proposed that firms

move through stages of awareness of a potential partner, exploration of the partner and

the potential relationship, expansion of inter-dependence and trust, commitment with a
focus on maintaining the relationship, and, potentially, dissolution of the relationship,
which is assumed to occur when the costs outweigh the rewards for one firm.

Wilson (1995) developed a process model that was built on the work of Dwyer et
al. (1987) with the hybrid concept of Borys and Jemison (1989). Borys and Jemison’s
(1989) process model on hybrid structure of two organizations has four stages: defining
the purpose of the relationship, setting the boundaries of the relationship, value creation
and hybrid stability. Wilson (1995) proposed that firms move through stages of searching
and selecting an appropriate partner, defining the purpose of the relationship, defining the
boundary of the degree to which each partner penetrates the other organization and
achieves joint action, creating relationship value, and finally maintaining the
relationship.

While Frazier (1983a), Dwyer et al. (1987) and Wilson's (1995) models are stage
models following a linear sequence, two other models are non-linear. Ring and Van de
Ven (1994) proposed a non-linear process model of how inter-organizational relations
emerge, grow, and dissolve over time. Their model suggests that organizations go
through three stages -negotiations, commitments, and executions stage repetitively. The
assessment at each stage involves sense making, including attributions about causes of
performance. Performance in this model is assessed as equity and efficiency. Negative
performance results would lead to withdrawal, renegotiation, or maintenance of the
relationship.

Anderson (1995) proposed a non-linear model that suggests that relationships are

remembered by managers, and thus experienced by them, as a series of exchange

episodes. Each episode consists of four events: defining purpose, setting relationship
boundaries, creating and sharing relationship value, and evaluating exchange outcomes.
At the end of each episode, the partners make a decision about the relationship: either to
continue at the same level, to extend, or to limit collaboration.

In sum, buyer-seller relationship development models are either linear or non-
linear. Both types of models indicate that relationships go through an initiation,
maintenance and dissolution process.

Empirical Results

There are several empirical studies of buyer-seller relationship development. The
Industrial Marketing and Purchasing (IMP) group (e.g., Hakansson, 1982; Hakansson &
Wootz, 1979) conducted a project targeting industrial buyer-seller relationships. Using
the case study approach, they studied a large number of industrial buyer-seller
relationships in five countries (Sweden, UK, France, West Germany and Italy). Based on
their case studies, Ford (1980) proposed that the overall buyer-seller relationship
develops through five stages: the pre-relationship stage, the early stage, the development
stage, the long-term stage and the final stage.

Jap and Ganesan (1995) conducted a cross-sectional survey on a chemical product
supplier’s retail customers. Their descriptions of relationship phases (exploration,
buildup, maturity, and decline) are based on Dwyer, et a] (1987) and Frazier’s (1983a)
work. They found that the levels of supplier commitment, performance, conflict, and
satisfaction with the relationship varied significantly over the phases in a manner
consistent with Dwyer, et al (1987) and Frazier’s (1983a) work. Narayandas and Rangan

(2004) did a longitudinal study on three buyer-seller dyad relationships in a mature

industrial market. They identified five processes that explain the evolution of buyer-seller
relationships in mature industrial markets: leveraging relative position and power to
define initial agreement terms, evaluating performance and converting it to interpersonal
trust and inter-organizational commitment, transferring interpersonal trust to inter-
organizational commitment, increasing interpersonal trust to balance initial contract
terms, and increasing inter-organizational commitment to balance initial power
asymmetries.

Under the assumption that the relationship development process is linear,
Reinartz, Krafft and Hoyer (2004) studied the impact of the customer relationship
management process (CRM) on performance. There are three dimensions of CRM:
relationship initiation, maintenance and termination. For each dimension, the researchers
listed the formalized activities that would increase a firrn’s performance and asked firms
to indicate the degree they implement them. Findings suggest that the implementation of
CRM processes is associated with better company performance in the relationship
initiation and maintenance dimension, but not in the relationship termination dimension.

In our study, the long-term relationship initiation stage and the maintenance stage
are the focus. The initiation stage of long-term relationships covers the period from
before the formation of long-term orientation to the moment of the formation of long-
term orientation; the long-term relationship maintenance stage covers the period from
right after long-term orientation formed to right before the dissolution of relationship.
The relationship initiation stage and maintenance stage are in accordance with other

relationship development models (see Figure 1).

The buyer-seller long-term relationship initiation stage is the stage when buyer
and seller both, after a period of transaction or cooperation trials, and after consistent
satisfaction with the each other’s performance and the value created during the
cooperation, form a long-term orientation for the future relationship. In the buyer-seller
long-term relationship maintenance stage, the buyer and seller have a stable relationship
in which both buyer and seller have commitment to each other and both are willing to
preserve this stability.

In the literature, there is no unambiguous way of defining the length of the
initiation stage or maintenance stage of the long-term relationship. This study follows the
approach of Reinartz and Kumar’s (2000) longitudinal study of buyer-seller long-life
relationship, which covered three years’ data. Therefore, in this study, it is appropriate to
define those buyer-seller relationships with a length of two years or less as at the long-
terrn relationship initiation stage, and buyer-seller relationships with a length of three or
more years as at the long-term relationship maintenance stage.

In the next chapter, a literature review is discussed, theoretical frameworks for
retailers’ and suppliers’ long-term relationship initiation stage and maintenance stage are
presented, and hypotheses for both relationship stages are proposed. Then an empirical
study is described. Discussion and managerial implications / further research are

presented in the last two chapters.

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10

CHAPTER 2

LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK

This study targets retailer — supplier relationships beginning with the inception of
each relationship. In other words, at the starting point of the relationship, the retailer and
its supplier have little knowledge of each other in a business transaction. Under such
circumstances, the Chinese retailer’s long-term orientation formation and maintenance
should basically follow the model of the US. retailer’s long-term orientation formation
and maintenance mechanism.

In the US, a party’s (e.g., retailer) trust in its partner (e.g., supplier) is the
antecedent of a long-term orientation. This is process-based and is the result of an
evaluation of a good transaction experience with the supplier (Zucker, 1986). Stemquist
and Chen (in press) did an in-depth interview study that confirmed the supposition that
the Chinese retailer’s long-term orientation formation and maintenance should basically
follow the model of the US. retailer’s long-term orientation formation and maintenance
mechanism. They found that there is some similarity between the US. and China retail
buyer-seller relationship. For example, in both cultures relationships are based on
evaluations of the experience with partners.

In contrast, Chung, Stemquist, and Chen (2003) found that Japanese retailers are
different. Long-term orientation is the antecedent of trust. In Japan, society provides
social sanctions, which value harmony and constrain both parties in a relationship not to
leave the relationship for fear of social punishment. China and US. societies are different
from Japanese society in that both countries are multicultural and their people have a

different value system (Stemquist, 1998).

ll

In the following sections, literature from Western countries and China is reviewed

6‘",
1

and a new conceptual framework is proposed. The hypotheses are labeled with for
long-term relationship initiation stage, and with “m” for long-term relationship
maintenance stage. In the following context, sometimes, “long-term relationship” is
interchangeable with “relationship” to be concise.

Satisfaction

Channel member satisfaction is defined most often as a positive affective state
resulting from the appraisal of all aspects of a firm’s working relationship with another
firm (Frazier, Gill, & Kale, 1989; Gaski & Nevin, 1985). A meta-analytical study by
Geyskens, Steenkamp, and Kumar (1999) revealed that satisfaction is not a unitary or
uni-dimensional construct. Geyskens and Steenkamp (2000) found that the results of
studies where satisfaction focuses primarily on economic outcomes of the relationship
proved to be substantially and consistently different from the results of studies that
adopted a more social view of that satisfaction.

Economic satisfaction is defined as a channel member’s evaluation of the
economic outcomes that flow from the relationship with its partner, such as sales volume,
margins, and discounts (Geyskens & Steenkamp, 2000). According to Geyskens et al.
(1999), an economically satisfied channel member considers the relationship to be a
success with respect to goal attainment. The member is satisfied with the general
effectiveness and productivity of the relationship with its partner as well as with the
resulting financial outcomes.

Social satisfaction is defined as a channel member’s evaluation of the

psychosocial aspects of its relationship, in which interactions with the exchange partner

12

are fulfilling, gratifying, and facile (Geyskens & Steenkamp, 2000). A channel member
satisfied with the social outcomes of the relationship “appreciates the contacts with its
partner, and, on a personal level, likes working with it [partner], because it believes the
partner is concerned, respectful, and willing to exchange ideas” (Geyskens et al., 1999,
p.224).
Outcomes of Supplier’s Role Performance: Economic Satisfaction and Social
Satisfaction

According to Frazier et al.’s (1989) definition, the supplier’s role performance
refers to how well the supplier does its job in a channel relationship with a retailer. We
conducted pro-study interviews and identified five basic elements of the supplier’s role in
a channel relationship in the retail market of China: 1) reasonable margin for retailers, 2)
uniqueness of products, 3) delivery of goods, 4) well known/respected brands, and 5)
product quality.

According to social exchange theory (Kelley & Thibaut, 1978; Thibaut & Kelley,
1959), in the exchange relationship between two participants (e.g. a retailer and a
manufacturer), once interaction begins, the fate of the relationship (its likelihood of
continuation and/or survival) depends on the level of outcomes the two parties
experience. Hence, there should be an evaluation process of the interaction experience for
each party. The two criteria of evaluation are: 1) each member’s comparison level (CL), a
standard against which the member evaluates the attractiveness of the relationship or how
satisfactory it is; and 2) each member’s comparison level for any alternatives (C141,),
which is the standard that the member uses in deciding whether to remain in or leave the

relationship.

13

Therefore, the retailer’s economic and social satisfaction are the result of the
evaluation of the economic and social outcomes in its interaction experience with the
supplier. The supplier’s good role performance leads to the retailer’s positive economic
outcomes and feeling that the interaction is fulfilling. Few studies were conducted to
investigate the relationship between role performance and economic satisfaction or social
satisfaction. Studying the roster of members in the National Office Product Association,
Gassenheimer, Calantone, Schmitz, and Robicheaux (1994) investigated the weaker dyad
member’s behavior and attitude toward maintaining relationships with its preferred
suppliers. They found that the supplier’s role performance was positively related to the
dealer’s satisfaction. Frazier (1983b) found manufacturer role performance to be
positively related to dealer satisfaction. According to the social exchange theory, Dwyer
et al. (1987) and Wilson (1995) proposed that there is an evaluation process for the
supplier’s role performance during the early stages of the retailer-supplier relationship
development.

The research stream pursued by the IMP group (e.g., Hakansson, 1982;
Hakansson & Wootz, 1979) conceptualized an exchange relationship as a series of
discrete episodes or interactions that yield economic and social outcomes. Evaluations of
such interactions provide opportunities for firms to interpret each other’s actions
(Anderson & Narus, 1990; Doney & Cannon, 1997; Morgan & Hunt, 1994) and are
factors in a firm’s decision to continue or terminate a relationship (Friedman, 1991).
Narayandas and Rangan (2004) did a longitudinal study of three buyer-seller dyad
relationships in a mature industrial market and found the evaluation to be episodical; if at

any time, a partner fails to perform to the agreed-upon terms, the relationship is in

14

jeopardy. Several conceptual process models of relationship development in marketing
are consistent with this research (e.g., Anderson, 1995; Ford, 1990; Hakansson, 1982;
Hakansson & Wootz, 1979; Nevin, 1995; Wilson, 1995). These models have implied that
firms evaluate each other’s performance episodically (or periodically) and posited that
parties will remain in a relationship only if its rewards are satisfactory relative to its costs.
Hence, the evaluation process of a supplier’s role performance is proceeding even when
the relationship is established or ongoing (Garbarino & Johnson, 1999).

Therefore, Hypothesis 1 is proposed for both the long-term relationship initiation
stage and maintenance stage of the retailer-supplier relationship (see Figure 2 and 3):
H21. At the long-term relationship initiation stage, a Chinese retailer’s economic
satisfaction (a) and social satisfaction (b) are positively related to its supplier’s role
performance.
Hml. At the long-term relationship maintenance stage, a Chinese retailer’s economic
satisfaction (a) and social satisfaction (b) are positively related to its supplier’s role
performance.
Trust

Trust is important in exchange relations where uncertainty is present (Mayer,
Davis, & Schoorrnan, 1995). In the strategy and marketing literature, inter-organizational
trust has been related to desirable outcomes, such as competitive advantage (Barney &
Hansen, 1994), firm performance, conflict and Opportunism reduction (Zaheer, McEvily,
& Perrone, 1998), satisfaction (Geyskens, Steenkamp, & Kumar, 1998), and other
favorable economic outcomes (Doney, Cannon, & Mullen, 1998; Pavlou & Ba, 2000).

From the new institutional economic literature, studies indicate that trust reduces the

15

transaction costs of an exchange, resulting in efficient transactions (Brorniley &
Cummings, 1995; Kwon & Sub, 2005; Dyer & Chu, 2003). Sociology literature argues
that trust is embedded in the social context of buyer-seller relationships and it modifies
economic activity and creates social capital (Granovetter, 1985). In the organizational
literature, trust has been posited to operate as a governance mechanism (Bradach &
Eccles, 1989), diminishing opportunism in exchange relations and promoting cooperation
(Morgan & Hunt, 1994).

The literature on trust provides two general types of trust: confidence or
predictability in a trustor’s expectations about a party’s behavior, and confidence in a
party’s goodwill (Doney & Cannon, 1997; Ganesan, 1993; Ring & Vandeven, 1992). The
first type, commonly associated with the dimension of credibility, refers to a party’s
predictability, reliability, honesty, expertise, and competence; this type has been viewed
as an expectation that an entity will behave in a predictable manner and can be relied on
to fulfill contractual obligations (Anderson & Weitz, 1989). The second type, commonly
related to the dimension of benevolence, refers to the expectation that a party will act
fairly and will not take unfair advantage of the trustor, even when given the chance
(Anderson & Narus, 1990). Trust in the partner’s benevolence is a channel member’s
belief that the partner is genuinely interested in one’s interests or welfare and is
motivated to seek joint gains. A benevolent partner subordinates an immediate self-
interest for long-range group gain (Anderson, Lodish, & Weitz, 1987; Crosby, Evans, &
Cowles, 1990).

Summarizing these two types, inter-organizational trust reflects two dimensions

(Ganesan, 1994): 1) credibility, which is based on the extent to which a buyer

l6

organization believes that the seller firm has the intention to perform the transaction
effectively and reliably because of fears of imposing costs on opportunism, and 2)
benevolence, which is based on the extent to which a buyer organization believes that the
seller firm has intentions and motives beneficial to them, even when new conditions
without any prior commitment arise. Borys and Jemison (1989) argued that benevolence
is a higher level of trust compared to credibility because cooperative behavior is not
based on rational calculation, but rather on goodwill. Therefore, the antecedents of trust
may have a different contribution to these two dimensions of trust, as illustrated later in
our study.

These two facets of trust were confirmed by later studies. Benevolence trust and
credibility trust have different relationships with other relationship variables. For
example, Bell, Oppenheimer, and Bartien (2002) found that once the supplier observes
violations of benevolence, it will notice issues of credibility. Ganesan (1994) investigated
the two facets independently in retailer and manufacturer relationships in the US. and
concluded that the two facets did demonstrate different relationships with other variables.
For example, credibility trust is positively related to long-term orientation, whereas,
benevolence trust is not related to long-term orientation. It would be appropriate then to
investigate credibility trust and benevolence trust separately.

Outcomes of Supplier’s Role Performance: Benevolence Trust and Credibility Trust

Although researchers have found a positive relationship between role
performance and trust, previous studies did not differentiate the two types of trust
relationships with role performance. Harich and LaBahn (1998) did 52 in-depth field

interviews with Mexican purchasing directors and found that customer trust is one of the

17

outcomes of salesperson role performance. Kumar, Scheer, and Steenkamp (1995) did a
field study of 417 small US dealers and 289 small Dutch dealers, reporting on their
relationship with suppliers; the research found a positive relationship between dealers’
economic outcomes and trust in their suppliers.

We can deduce the relationship between role performance and the two types of
trust based on the definition of credibility trust and benevolence trust. A retailer has
credibility trust in its supplier when that retailer believes the supplier has the ability to
perform the transaction effectively and reliably. The better the supplier performs its role,
the more the retailer will feel the supplier is credible. Likewise, when a supplier performs
its role well, the retailer will believe that the supplier has intentions and motives that are
beneficial to the retailer. In other words, the supplier must not act opportunistically or
take unfair advantage of the retailer when given the chance; otherwise, the retailer’s
economic outcomes will not be satisfactory. Hence the supplier’s good role performance
leads to the retailer’s benevolence trust in the supplier.

The trust resulting from evaluating the supplier’s role performance exists at both
the relationship initiation stage and the maintenance stage (Wilson, 1995). Thus,
Hypothesis 2 is proposed for both the initiation stage and the maintenance stage of the
retailer-supplier relationship:

Hl2. At the long-term relationship initiation stage, a Chinese retailer’s benevolence trust
(a) and credibility trust (b) are positively related to its supplier’s role performance.
Hm2. At the long-term relationship maintenance stage, a Chinese retailer’s benevolence

trust (a) and credibility trust (b) are positively related to its supplier’s role performance.

18

Outcomes of Satisfaction: Trust

Although researchers found a positive relationship between satisfaction and trust,
there is no consensus as to the causal ordering of satisfaction and trust. One argument is
that satisfaction is a consequence of trust, and satisfaction is a global evaluation of
fulfillment in the relationship, to which trust may contribute (e.g., Andaleeb, 1996;
Anderson & Narus, 1990; Armstrong & Yee, 2001; Geyskens et al., 1998; Grewal,
Comer, & Mehta, 1999; Pavlou, 2002; Sanzo, Santos, Vazquez, & Alvarez, 2003). In
contrast, the other argument is that satisfaction fosters trust (Batt, 2003; Ganesan, 1994;
Garbarino & Johnson, 1999; Geyskens et al., 1999; Selnes, 1998; Yu & Pysarchik, 2002).
In our study, the argument that satisfaction fosters trust is developed. The rationale is that
the trust exists in the established relationships, but it doesn’t exist at the beginning of the
relationship. This theory is in accordance with Dwyer et al.’s (1987) rationale on
relationship development, which adopts a longitudinal perspective on channel
relationships. Satisfaction and trust are formed during subsequent phases of relationship
development. Satisfaction develops in the short run and is a report of past interaction
(Williams & Hazer, 1986). Trust takes relatively longer to develop and has a more
expectational quality to it (Williams & Hazer, 1986).

There is little research on how economic or social satisfaction is associated with
either credibility trust or benevolence trust. According to the definitions of the two types
of satisfaction and the two types of trust, economic satisfaction should have a direct
relationship with benevolence trust; and social satisfaction should have a direct
relationship with credibility trust. After a retailer is satisfied with the economic outcome

from the initial interaction with the supplier, the retailer’s economic goal is reached and

19

is not endangered; this economic satisfaction must foster benevolence trust which means
the retailer believes that the supplier will put the retailer’s interest on a par with its own.
At the same time, the retailer is satisfied with the psychosocial aspects of the relationship
with its supplier. The supplier should have a high degree of predictability, reliability,
integrity and honesty, indicating credibility.

The link between economic satisfaction and benevolence trust has not been
investigated. Also, the link between social satisfaction and credibility trust is not well
understood. Additionally, we do not know if these satisfaction-trust relationships exist at
both the initiation and maintenance stages of the relationship. Periodically, partners
evaluate their economic and social satisfaction with the buyer and seller relationship
(Narayandas & Rangan, 2004). As discussed in the satisfaction section, we can deduce
that the economic and social satisfaction resulting from that evaluation can foster trust at
both stages.

Therefore, Hypothesis 3 is proposed for both the initiation stage and the
maintenance stage of the retailer-supplier relationship:
Hj3. At the long-term relationship initiation stage, a Chinese retailer’s economic
satisfaction fosters benevolence trust in its supplier (a); a Chinese retailer’s social
satisfaction fosters credibility trust in its supplier (b).
Hm3. At the long-term relationship maintenance stage, a Chinese retailer’s economic
satisfaction fosters benevolence trust in its supplier (a); a Chinese retailer’s social
satisfaction fosters credibility trust in its supplier (b).

Economic satisfaction and social satisfaction are the two components of

satisfaction. Geyskens and Steenkamp (2000) found the correlation coefficient between

20

economic satisfaction and social satisfaction was .56 in the sample of butchers and .46 in
the sample of bakers. Both correlations are significantly below unity (p’s <.001),
indicating that the two components of channel member satisfaction are positively related
but not redundant. Credibility trust and benevolence trust are the two components of
trust. Ganesan (1994) found that the two-component model of trust best fit his data.
Hence, Hypothesis 4 is proposed for both the initiation stage and the maintenance stage
of the retailer-supplier relationship:
Hi4. At the long-term relationship initiation stage, a Chinese retailer’s economic
satisfaction and social satisfaction are positively correlated (a); a Chinese retailer’s
benevolence trust and credibility trust are positively correlated (b).
Hm4. At the long-term relationship maintenance stage, a Chinese retailer’s economic
satisfaction and social satisfaction are positively correlated (a); a Chinese retailer’s
benevolence trust and credibility trust are positively correlated (b).
Opportunism

In the original transaction cost literature, opportunism is defined in general terms
as “self-interest seeking with guile” (Williamson, 1975, p. 6). What sets opportunism
apart from the standard economic assumption of self-interest seeking behavior is the
notion of guile. In his subsequent work, Williamson (1985, p. 47) describes guile as
lying, stealing, cheating, and calculated efforts to mislead, distort, disguise, obfuscate, or
otherwise confuse. In practical terms, this characterization allows for the possibility that
human beings are only weakly moral (Douglas, 1990) and cannot be counted on to honor

contracts or fixed rules of interaction (John, 1984; Williamson, 1993).

21

This previous conceptualization has been described as “blatant” or “strong form”
opportunism (Masten, 1988). Research suggests that formal contracts often play a
relatively limited role in inter-firm relationships (Macaulay, 1963; Macneil, 1978). Even
if a contract exists in a particular relationship, it is often augmented by a variety of
applicable/related norms and informal agreements (Heide & John, 1992; Macneil, 1978).

Macneil (1978) called informal agreements relational contracts. Such contracts
are sometimes described as “social contracts”(John, 1984; Macneil, 1980) and are often
incomplete in a formal sense. These contracts have been described as frameworks
(Llewellyn, 1931) rather than complete governance devices in their own right. Therefore,
according to Macneil (1981), opportunism under relational contracting means that
specific contracting norms are being violated in a particular relationship.

Beyond formal or informal norms that opportunists can violate, opportunism
could happen in terms of goodwill trust. For example, a supplier that withholds a vital
piece of technical information is acting opportunistically according to the goodwill trust
definition, but not in the strict contractual sense (Sako & Helper, 1998).

Effect of Opmrtunism on Benevolence Trust and Credibility Trust

Friman et al. (2002) interviewed five different service entrepreneurs in Sweden,
Australia, and the UK and found during the establishment of a business, one party’s
opportunistic behavior deteriorates its partner’s trust. Bell et al.'s (2002) case study
examined the deteriorating relationship between two international high-tech firms who
had an established relationship. The research found that the supplier’s perceptions of a
partner’s opportunistic behavior contribute to its decreasing trust levels. Several survey

studies found a negative relationship between the seller’s opportunistic behavior and the

22

buyer’s trust in the seller (Armstrong & Yee, 2001; Morgan & Hunt, 1994; Batt, 2003),
although Kwon & Sub (2005) found that this relationship was not significant.

Few studies have investigated the relationship between opportunism and
benevolence trust and credibility trust separately; even fewer studies have investigated
those relationships at the relationship initiation stage and the maintenance stage,
respectively. Therefore, we propose the same negative relationship between opportunism
and benevolence trust or credibility trust as what was found for the relationship between
opportunism and trust. Furthermore, we propose the same kinds of relationships for both
the relationship initiation stage and the maintenance stage. Our data will reject or support
these hypotheses and future studies will collect more data to repeat the test. Hence,
Hypothesis 5 is proposed for both the initiation stage and the maintenance stage of the
retailer-supplier relationship:

Hr5. At the long-term relationship initiation stage, a Chinese retailer’s benevolence trust
(a) and credibility trust (b) are negatively related to its supplier’s opportunism.

HmS. At the long-term relationship maintenance stage, a Chinese retailer’s benevolence
trust (a) and credibility trust (b) are negatively related to its supplier’s opportunism.

According to Bell, et al.’s case study (2002), during the buyer-supplier’s trust
deterioration, benevolence is more important and triggers companies to reassess their
trust levels. The author calls for further study to reassess the importance of benevolence
trust. Therefore Hypothesis 5c is proposed for both the initiation stage and the

maintenance stage of the retailer-supplier relationship:

23

Hch. At the long-term relationship initiation stage, the relationship between a Chinese
retailer’s benevolence trust and its supplier’s opportunism is stronger than the
relationship between the retailer’s credibility trust and its supplier’s opportunism.
HmSc. At the long-term relationship maintenance stage, the relationship between a
Chinese retailer’s benevolence trust and its supplier’s opportunism is stronger than the
relationship between the retailer’s credibility trust and its supplier’s opportunism.
Effect of Opportunism on Social Satisfaction

Studying the German automotive industry, Backhaus and Buschken (1999) found
that opportunistic behavior leads to an unsatisfying relationship. Studying the relationship
between food franchisers and franchisees, Gassenheimer, Baucus, and Baucus (1996)
found a negative relationship between a franchiser’s opportunistic behavior and the
franchisee’s satisfaction. Entrepreneurs who pursue conflicting goals lack confidence that
they can work together, think they interact ineffectively, make little progress on tasks,
and do not expect to collaborate productively in the future (Gassenheimer et al., 1996).
Periodically partners evaluate their economic and social satisfaction with the buyer and
seller relationship (Narayandas & Rangan, 2004). As discussed in the satisfaction
section, we can deduce that opportunism will lead the retailer’s social dissatisfaction at
both stages.

Although the relationship between opportunism and social satisfaction is self-
evident, it is retained in the models to avoid omitting variable error. Therefore,
Hypothesis 6 is proposed regarding the initiation stage and maintenance stage of the

retailer-supplier relationship:

24

H16. At the long-term relationship initiation stage, a Chinese retailer’s social satisfaction
is negatively related to its supplier’s opportunism.
Hm6. At the long-term relationship maintenance stage, a Chinese retailer’s social
satisfaction is negatively related to its supplier’s opportunism.
Long-Term Orientation

A retailer’s long-term orientation is the perception of inter-dependence of
outcomes where both a vendor’s outcomes and joint outcomes are expected to benefit the
retailer in the long term (Ganesan, 1994; Kelley & Thibaut, 1978). Retailers with a short-
terrn orientation are concerned only with the options and outcomes of the current period;
whereas retailers with a long-term orientation focus on achieving future goals and are
concerned with both current and future outcomes (Ganesan, 1994). Firms with a long-
term orientation depend on “relational exchanges” to maximize profits over a series of
transaction; whereas firms with a short-term orientation rely on the efficiencies of market
exchanges to maximize profits in individual transactions (Ganesan, 1994). In addition,
long-term orientation has been differentiated from the expectation of relationship
continuity (Anderson & Weitz, 1989; Noordewier et al., 1990); long-term orientation
focuses on the strong desire for and intent to establish a long-term relationship, rather
than just on the desire for probable future interaction (Ganesan, 1994; Morgan & Hunt,
1994). Although long-term orientation indicates a desire for future interaction, or
relationship continuity, long-term orientation has been proposed as a better indicator of
closeness in relationships than simply relationship duration (Ganesan, 1994). Long-term
orientation refers to an orientation toward a specific vendor, not a generalized orientation

toward all vendors (Ganesan, 1994).

25

Long-term orientation is different from commitment, but the two constructs do
have something in common. Commitment is a desire to continue the relationship in the
future and a willingness to make short-term sacrifices to maintain the relationship (e.g.,
Anderson & Weitz, 1992). Commitment does not develop fully until relationships enter
the maintenance phase of buyer-seller relationship development, the commitment phase;
this is a phase characterized by both parties purposefully engaging resources to maintain
their relationship (Dwyer et al., 1987).

Commitment is composed of two components: 1) attitude and 2) behavior
(Mowday, Steers, & Porter, 1979). A party’s attitudinal commitment in a dyad is a long-
tenn orientation to its relationship with the other party (Anderson & Weitz, 1992;
Morgan & Hunt, 1994). Long-term orientation indicates the intention and desire for
establishing long—term relationship. Commitment indicates the desire to maintain the
established relationship. Therefore, long-term orientation is established at the early stage
of a relationship and from the start of the relationship maintenance stage (right after the
long-term orientation is formed), long-term orientation can be regarded as an attitudinal
commitment.

Antecedent of Long-term Orientation: Credibility Trust

Empirical studies (Doney & Cannon, 1997; Friman et al., 2002; Narayandas &
Rangan, 2004; Pavlou, 2002) found that trust is the antecedent of long-term orientation
during the buyer—seller relationship formative stage. To study how service firms develop
and maintain international relations during the establishment of a business, Friman et al.
(2002) interviewed five different service entrepreneurs in Sweden, Australia and the UK.

All the entrepreneurs emphasized that trust is a critical antecedent to commitment. When

26

examining the nature of the trust developing process, Doney and Cannon (1997) found
the buying firm’s trust of the supplier firm was the antecedent of the buying firm’s
anticipation of some future interaction. Studying 102 organizational buyers in an online
BZB marketplace, each of whom had five or more transactions for high-priced industrial
equipment, Pavlou (2002) found that trust in a seller’s credibility positively influenced
the buyer’s continuity; trust in the seller’s benevolence positively influenced the buyer’s
continuity. N arayandas & Rangan's (2004) longitudinal study of three buyer-seller dyad
relationships in a mature industrial market found that trust is the deal breaker to drive
commitment. More specifically, interpersonal trust facilitates the development of inter-
organizational commitment. With the absence of such trust, the commitment will be
destroyed.

Although other researchers, when they investigated the buyer-seller relationships,
did not study the relationship between trust and long-term orientation at specific stages of
the relationship, they did find trust to be the antecedent of long-term orientation. Ganesan
(1994) studied eight retail department store chains where 48 retail buyers responded to a
questionnaire based on short-term relationships with their vendors and 76 retail buyers
responded based on long-term relationships with their vendors. Ganesan found that there
is a positive relationship between a vendor’s credibility trust and a retailer’s long-term
orientation; however, there is a non-significant relationship between a vendor’s
benevolence trust and a retailer’s long-term orientation. Yu and Pysarchik (2002) studied
210 cosmetic retailers, whose representatives responded to questions about their
relationship with major manufacturers. The length of the relationship ranged from less

than 4 years to more than 10 years. They found a positive relationship between trust and

27

long-term orientation. Other researchers reported a positive relationship between trust
and commitment (e. g. Andaleeb, 1996; Garbarino & Johnson, 1999; Geyskens et al.,
1999; Kwon & Sub, 2005; Morgan & Hunt, 1994; Siguaw, Baker, & Simpson, 2003).

A retailer’s trust in a vendor affects the long-term orientation of that retailer in
three ways (Ganesan, 1994): 1) it reduces the perception of risk associated with
opportunistic behaviors by the vendor; 2) it increases the confidence of the retailer that
short-term inequities will be resolved over a long period and 3) it reduces the transaction
costs in an exchange relationship.

Ganesan (1994) is the only researcher who has empirically investigated the
relationships between credibility trust and long-term orientation and between
benevolence trust and long-term orientation. He found that trust is important in
developing a long-term orientation, but only one dimension of trust (credibility) is a
significant predictor. Both retailers’ and vendors’ viewpoints indicate that the perception
of benevolence is not a significant determinant of long-term orientation. Friman, et al.
(2002), in an in-depth interview study found that credibility, instead of benevolence, is
the foundation for the more involved form of commitment.

Other researchers (e.g., Dwyer et al., 1987; Haas & Deseran, 1981) have claimed
that trust is an important factor early in a relationship and an essential precondition for
the relationship to move to more committed stages of development. Trust is often
highlighted as important in long-term or established relationships, but Grayson & Ambler
(1999) found that trust is important early in a relationship as well.

Therefore, Hypothesis 7 is proposed for both the initiation stage and maintenance

stage of the retailer-supplier relationship:

28

Hr7a. At the long-term relationship initiation stage, a Chinese retailer’s benevolence trust
in its supplier is not related to its long-term orientation.
Hm7a. At the long-term relationship maintenance stage, a Chinese retailer’s benevolence
trust in its supplier is not related to its long-term orientation.
Hflb. At the long-term relationship initiation stage, a Chinese retailer’s credibility trust
in its supplier is positively related to its long-term orientation.
Hm7b. At the long-term relationship maintenance stage, a Chinese retailer’s credibility
trust in its supplier is positively related to its long-term orientation.
Antecedents of Long-term Orientation: Economic Satisfaction and Social
Satisfaction

There are few empirical studies that have investigated the relationship between
long-term orientation and satisfaction. In a study of the relationships between cosmetic
retailers and their manufacturers, Yu and Pysarchik (2002) found that trust is the
mediator between economic / non-economic satisfaction and long-term orientation. In
other words, there is no direct relationship between economic / non-economic satisfaction
and long-term orientation. However, Ganesan (1994) found that satisfaction with
previous outcomes is positively related to a retailer’s long-term orientation. Neither study
investigated the relationships separately for the initiation stage and maintenance stage of
the relationships.

At the initiation stage of a relationship, the relationship is not established, and
both parties of the buyer-seller dyad are at the evaluation stage. The relationship could
end or could continue after the parties evaluate their experience with the other party.

Although it is not an organizational buyer-seller study, Garbarino and Johnson's (1999)

29

study is the only empirical study on buyer-seller relationships that segments the
relationships into low relational and high relational typologies. They studied customers of
a New York off-Broadway repertory theater company by segmenting the customer base
into low and high relational groups. They found that for low relational customers, overall
satisfaction was the primary mediating construct between the component attitudes and
future intentions (overall satisfaction is directly and positively related to commitment);
for high relational customers (consistent subscribers), trust rather than satisfaction was
the mediator between component attitudes and future intentions (trust instead of
satisfaction is directly and positively related to commitment). Because at the initiation
stage of the relationship, a relationship is not fully established, the relationship should
have low relational characteristics. Narayandas and Rangan (2004), in their longitudinal
study on three buyer-seller dyad relationships found that during the maintenance stage of
a relationship, trust is the only factor that drives commitment. Therefore, Hypothesis 8 is
proposed for the initiation stage and the maintenance stage of the retailer-supplier
relationship:

H28. At the long-term relationship initiation stage, a Chinese retailer’s economic
satisfaction (a) and social satisfaction (b) with its supplier are positively related to its
long-term orientation.

Hm8. At the long-term relationship maintenance stage, a Chinese retailer’s economic
satisfaction (a) and social satisfaction (b) with its supplier are not related to its long-term

orientation.

30

Effect of Opportunism on Long-term Orientation

As discussed in the section on opportunism, opportunism is some form of
cheating or undersupply relative to an implicit or explicit contract. One party’s
opportunism creates trading difficulties and leads to its partner’s economic loss (W athne
& Heide, 2000). As such, the partner has to increase costs to manage opportunism.
Hence, under the same conditions, when there is an alternative supplier, there is high
probability for a company to switch its partner. Studying national tire dealers and
retreaders, Morgan and Hunt (1994) found there is a positive relationship between a
supplier’s opportunistic behavior and the dealer’s propensity to leave the relationship. In
our study, we propose different kinds of relationships between opportunism and long-
term orientation at different stages. At the long-term relationship initiation stage when
long-term orientation is not fully formed, trust in their partner is the dominant factor for
firms to enter relationships. Other factors can influence the decision of forming long-term
orientation only indirectly by affecting the level of trust experienced by firms, and
opportunism is one of them. Therefore we do not propose a direct relationship between
opportunism and long-term orientation at this stage. Hypothesis 9 is proposed only for the
maintenance stage of the retailer-supplier relationship:

Hm9. At the long-term relationship maintenance stage, a Chinese supplier’s opportunism
with its retailer is negatively related to the retailer’s long-term orientation.
Guanxi and Guanxi Practice

Guanxi refers to the existence of direct particularistic ties between an individual

and others (Farh, Tsui, Xin, & Cheng, 1998) and is a social relationship that has a

reciprocal requirement. Guanxi practice (e.g., banqueting, gift-giving, etc.) is used to

31

build or maintain personal social relationships. It has been recognized that the traditional
practice of relationship marketing in the Chinese business community, known as guanxi
or “personal relationship,” is a major barrier hindering outsiders from penetrating the
world’s fourth major economic power after North America, Europe and Japan, namely
the Chinese Commonwealth (Fock & Woo, 1998). Managers’ interpersonal ties with top
executives at other firms are particular resources that newcomers cannot imitate.
Although the Chinese can hardly claim to be the only society where networks play an
important role in social life, many observers and scholars of China recognize guanxi as
something special, and even crucial, within Chinese society and Chinese circles, and
more broadly prevalent than elsewhere (Gold, Guthrie, & Wank, 2002).

There are two main arguments regarding the origin of guanxi and guanxi practice
in the literature. One argument is that guanxi is an essential element of Chinese culture
and a phenomenon deeply rooted in the Chinese psyche. In contrast to the individual
orientation in the J udeo-Christian tradition, deriving identity and fulfillment from a direct
spiritual relationship to God, Chinese people believe there can be no fulfillment for the
individual in isolation from his fellow men (deBary, 1985; King, 1985). It follows that
understanding and successfully managing interpersonal relationships are essential
elements of being authentically Chinese, regardless of time or place (Gold et al., 2002).
Each individual is at the center of an egocentric network with no explicit boundaries and
is always involved in social interactions (guanxi) of varying strength (Fei, 1992). People
are continuously evaluating and managing-through reciprocity-~their relations with

others. From this perspective, the centrality of guanxi in Chinese society at any time or

32

place is an essential part of China’s national character (Hwang, 1987). Why does guanxi
assume such centrality in the Chinese society? The answer lies in Confucianism.

Culturally, guanxi is deeply rooted in Confucianism, a philosophy begun during
the fifth century BC, which promotes a set of moral values to stabilize a state and
society (Lo & Otis, 2003). Confucianism’s main concern is to establish harmony in a
complex society of contentious human beings through a strong and orderly hierarchy
(familial hierarchy, king-subject, and elite-mass hierarchy) in which human beings are
fundamentally relationship-oriented (Wank, 1996). In a predetermined relationship, one’s
status and responsibilities within the relationship dictate behavioral expectations, and
individual desires are heavily downplayed. For example, within the family system, a
person earned his or her reputation (e. g. as a good wife, a good son) through proper
performance of ritual. Confucian guanxi was enforced and sustained through rituals (Lo
& Otis, 2003). In other words, the guanxi practices, such as gift-giving and banqueting,
during the Confucian era are only ritualistic (Xu, 1990; Yang, 1994).

Confucian texts provide explicit and detailed rules of these relationships, each of
which define fixed social roles and specify, as part of each role, particular obligations,
duties, power, and rights. The general principles (Lo & Otis, 2003) of a Confucian guanxi
practice are:

l) The flow of obligations and duties is, though asymmetrical, broadly conceived
of as reciprocal. Obligations between individuals within different levels of the hierarchy
are mutual, though rarely identical or equal; all parties have obligations as well as rights.

2) Familial and social hierarchies are construed as a moral order and widely

accepted as such. Respect for hierarchy is strongly demanded.

33

3) Ritual is understood as a material manifestation of the proper human
sentiments accompanying specific social relations. The expressive and the instrumental
are, therefore, not clearly separable, but rather combined and manifested through the
practice of ritual.

In sum, institutionalized through the state and the patriarchal family and with its
principles of reciprocity, respect for hierarchy, and the ritual materialization of sentiment,
Confucian doctrines played a dominant role in structuring and sustaining social
relationships. However, this cultural center dictated relationships as opposed to
encouraging voluntary interactions by ignoring connections beyond face—to-face
relationships (Lo & Otis, 2003). Any active role the individual could play in determining
the character and tone of each exchange in an external network beyond the predetermined
relationship was very limited or impossible.

In contrast to the Confucian explanation, the other argument is that guanxi is a
response to specific institutional and historical conditions (Maoist era) that existed in
China. It is the institutional condition (shortage economy) that has driven the emergence
of such phenomenon. From this perspective, guanxi is no different from its Russian
analog, Blat, and the gift economy that is built around this concept. (Ledeneva, 1998).
What these societies share, institutionalists would argue, is that they are both shortage
economies with weak legal infrastructures, so networking and trust become fundamental
parts of economic transactions. However, guanxi does exist in Chinese societies that vary
institutionally from mainland China; guanxi is found in Taiwan and Singapore (e.g., Bian

& Ang, 1997).

34

After the Chinese Communist Party came to power, the CCP formally subscribed
to the universal moral principles of socialist comradeship and strove to actively purge all
remainders of the particularism of Confucian guanxi (Vogel, 1965). The state, formerly
an institutional pillar of Confucianism, became its archenemy. Further, as the CCP
attempted to subordinate all ties that existed outside of its purview to an institutional
logic of the socialist state, the party dismantled the second institutional pillar of
Confucianism, that is, the patriarchal extended family (Yang, 1994). With its social
reform polities, the party also weakened the authority of patriarchy. In a word, Confucian
guanxi was de-institutionalized. However the cultural legacy of guanxi survived in
fragments, which were drawn upon as people negotiated the newly imposed
organizational life of Maoist-era socialism.

Socialist organizational authority at the grassroots level depended on informal
guanxi ties. For example, to maintain discipline within the work unit system, work unit
managers had to supplement their party-given power with the personal loyalty of selected
workers with whom they cultivated guanxi ties through favors in the redistribution of
scarce goods and services (Walder, 1986). In this sense, guanxi was co-opted by socialist
institutions to function as a political tool. Also, the exchange of goods and services
through informal guanxi ties proliferated in the underground of socialist institutions,
bypassing — and thus violating — bureaucratic rules and mechanisms (Yang, 1994). In
this context, the exchange of favors and gifts through guanxi networks became an escape
from state penetration and its disciplining techniques. In contrast to the Confucian era,
when relationships were preordained by farrrily hierarchy and defined with formal and

explicit duties and rights, the underground nature of guanxi practice during Maoist

35

period, was a personal guanxi practice, and relationships were to be constructed by
individuals.

The basis of social relationships shifted from actual, preexisting familial bonds to
the creative invocation of familial terms outside of family and kinship. As people
developed relations on the basis of mutual experience (friendship or shared
organizational affiliation, for example), they imagined such relationships in terms of
pseudo-familial ties; this common cultural language allowed for mutual understanding of
the relationship and facilitated its consolidation.

Guanxi as an informal practice in the Maoist period derived its general rules from
fragments of its Confucian legacy. Stripped of all its formal, ritualistic, and elaborate
protocols, the “tactical processes” of guanxi ties (Yang, 1994) were flexibly infused by a
Confucian sense of morality using the basic principles of respect for hierarchy,
reciprocity, and materialization of sentiment. These cultural norms guided exchanges and
interactions on the margins of formal institutions. Networked individuals adhered to these
cultural rules, so they could continue to rely on each other to conceal their guanxi
practice from state authorities.

In sum, guanxi practices continued to proliferate in the socialist period, but the
practices were cordoned off into a realm of underground activities that defied state
regulation. The cultural rules of guanxi had completely lost their original institutional
bases. Guanxi as a cultural legacy was available solely in fragments, which could be put
to work only with voluntary and creative application.

If the culture of guanxi was de-institutionalized and reserved only as a fragmented

legacy in the Maoist era, in the current Reform era, guanxi ties have resurfaced and serve

36

to socially “imbed” the rapidly growing Chinese economy (Lo & Otis, 2003). Social
actors extensively use guanxi as a cultural metaphor for building voluntary market
relationships and, as an unintended consequence, have begun to transpose this mode of
voluntary relationship into a wide range of nonmarket, nonutilitarian, social contexts (Lo
& Otis, 2003). Individuals who were previously separated by class, regional, and national
boundaries now come into frequent contact and interaction. As such, people participate in
increasingly numerous networks and relationships. The increasing multiplicity of the
potential contexts of guanxi allows individuals to underscore alternative relationships
somewhat strategically (Lo & Otis, 2003). While a clear-cut exit from a guanxi network
is rare, people may minimize their participation in particular relationships at certain
points. In addition, individuals can withhold their participation in a guanxi tie by
declining the reciprocation of gifts and favors. Refusing to play the part of a debtor will
then enable individuals to have enough freedom to decide whether to establish personal
networks with others (King, 1991).
Guanxi Practice at the Relationship Initiation Stage

What would the guanxi practice be like during the Chinese retailer-supplier
relationship initiation stage and maintenance stage? There is little research on this issue.
Based on the review above, it can be concluded that in the current Reform era at the
retailer-supplier relationship initiation stage, the new supplier’s seller, will purposely
conduct guanxi practice in order to sell products. In the year 2000, Stemquist and Chen
(in press) conducted in-depth interviews with food retail buyers and suppliers. They
found that, although retailers have the freedom to decline any gift, banqueting or favor,

because retailers have power in the market, suppliers are still eager to use guanxi

37

practices to cultivate favors with retail food buyers to initiate relationships when they are
selling new products. However, retailers have set up strict regulations to discipline their
buyers regarding participation in these relationships. The food retailers are fearful that an
incurred obligation of personal relationship will dampen a company’s market
performance. If they find a buyer having a personal relationship with a vendor, they will
terminate the relationship with that vendor. If a buyer violates the regulation, the buyer
will be fired. The obligations of guanxi are very real. In the wrong place, at an
inappropriate time, with unsuitable people, the obligations can become a trap that is hard
to escape (Ambler, 1994). In some instances, businesses must actively refuse gifts for
fear of future obligations (Dunfee & Warren, 2001). Therefore, Hypothesis 9 and 10 are
proposed for the initiation stage of the retailer-supplier relationship:
Hr9. At the long-term relationship initiation stage, a Chinese supplier’s guanxi practice
with its retail buyers is negatively related to the retailer’s social satisfaction.
H110. At the long-term relationship initiation stage, a Chinese supplier’s guanxi practice
with its retail buyers is negatively related to the retailer’s long-term orientation.
Guanxi Practice at the Relationship Maintenance Stage

When Chinese food retailers make a new product acceptance decision, although
they prohibit any manufacturer’s guanxi that aims at cultivating personal relationships
with retail buyers, they do allow personal relationships to happen after they have
established a long-term business relationship with those suppliers whose role
performances are good (Stemquist & Chen, in press). At the maintenance stage, guanxi
practice between retail buyers and suppliers is more like cultural habits. The practice

maintains good guanxi or personal relationships. For an on-going buyer-seller

38

relationship, guanxi is positively related to a firm’s performance (Luo, 1997; Luo &
Chen, 1997; Peng & Luo, 2000; Abramson & Ai, 1997). Good guanxi with suppliers may
help a firm acquire quality materials, good services, and timely delivery (Peng & Luo,
2000), and it can also reduce transaction costs (Standifird & Marshall, 2000). Guanxi
practice, for example, gift-giving and banqueting, are practices to maintain good guanxi
in ongoing relationships (Yang, 1994). As discussed earlier, at the relationship initiation
stage, Chinese food retailers will not build up a relationship with suppliers who practice
guanxi, thus no economic interactions between retailers and suppliers will be expected
(Stemquist & Chen, in press). Therefore, Hypothesis 10 is proposed only for the
maintenance stage of the retailer-supplier relationship:
Hmlo. At the long-term relationship maintenance stage, A Chinese supplier’s guanxi
practice with its retail buyers is positively related to the retailer’s econorrric satisfaction.
Power/Dependence Asymmetry

Dependence and its counterpart, power, are regarded by many theorists as central
in explaining organizational or interpersonal behaviors (Morgan & Hunt, 1994; Thorelli,
1986). Dependence is defined as the degree to which a target firm needs the resources
provided by the source firm to achieve its goals (Frazier, 1983b; Heide & John, 1988).
Marketing channel power is the ability of one channel member (e. g. supplier) to control
the decision variables in the marketing strategy of another member at a different level of
the distribution channel (e.g. retailer) (El-Ansary & Stern, 1972). Power is based on the
value received by the firm through its relationship with the partner and the extent to
which that partner and the value generated are irreplaceable (Frazier & Rody, 1991). In

marketing channels, resource dependence theory characterizes channel relationships as a

39

set of power relationships based on the acquisition and exchange of economic resources.
When a channel member controls resources that other channel members want or need, it
acquires power, which enables it to have the potential to exert influence over other
members to explain behavioral and economic outcomes of exchange (Brown, Lusch, &
Nicholson, 1995; Dahl, 1957; Emerson, 1962; Pfeffer & Salancik, 1978).

Anderson and Narus (1990) proposed that it is the firm’s perception of its
dependence relative to its partner that is of most interest in channel relationships. The
buyer’s (focal firm) perception of dependence asymmetry is the perceived relative
asymmetry, defined as the comparative level of dependence in an exchange, and parallels
Emerson’s (1962) “power advantage” notion. Operationally, dependence/power
asymmetry is the difference in the dependence levels, taken from the perspective of the
focal organization. Assuming dependence to be the inverse of power, a positive value
indicates a power advantage and a negative value indicates a power disadvantage. The
absolute size of this difference captures a party’s relative power. Relative asymmetry
may vary from dependence that favors the focal firm to balance or symmetry or
dependence that favors the partner. A buyer’s or seller’s market illustrates the
unbalanced relationships that contain one highly dependent exchange party (Gundlach &
Cadotte, 1994).

The Moderator Role of Power/Dependence Asymmetgy

The political economy paradigm (Amdt, 1983) holds that the interdependency
asymmetry of relationship dyads is the context for any econorrric and social exchange
between the two parties. Brown, Lusch and Nicholson (1995) found that power

asymmetry has moderating effects on the relationships between retailers and suppliers.

40

Although researchers have found that asymmetry of interdependence has a negative
effect on channel member attitudes (Anderson & Weitz, 1989; Gundlach & Cadotte,
1994; Kumar et al., 1995), our study focuses on the moderator role of power/dependence
asymmetry in the buyer-seller relationships. The structure of power/dependence
indirectly affects each party’s evaluations of its partner’s performance (Gundlach &
Cadotte, 1994). This focus has, so far, been neglected in the literature.

According to social exchange theory (Thibaut & Kelley, 1959), a party in a dyad
has power over the other party depending on its available alternative relationships. When
each party evaluates the other party’s performance, in addition to CL (comparison level),
CL,“ (comparison level for alternatives) becomes another criterion. A powerful party
(with high CL...) would be stricter when evaluating economic outcomes based on the
other party’s performance than a weaker party (with low CL”) is. On the contrary, when
evaluating the psychosocial outcomes based on the other party’s performance, the weak
party is more easily satisfied with the other party’s good performance. The weak party is
vulnerable in an asymmetric relationship. Asymmetry creates the potential for
exploitation, something that powerful firms have been known to take advantage of in
dealing with their more vulnerable channel partners (Kumar et al., 1995). A vulnerable
retailer, unable to avail itself of traditional safeguards against supplier opportunism such
as contractual protection (Heide & John, 1988), must often rely on its powerful partner’s
sense of fairness (Anderson & Weitz, 1992; Heide & John, 1988). The weak party’s good
economic outcomes as a result of the powerful partner’s good role performance enhances
the weak party’s perception of fairness from the powerful party. This perception of

fairness strengthens the weak party’s social satisfaction with the powerful party.

41

Kim (1998) conducted a study of the effects of perceived interdependence on
distributor attitudes. In this study he found that in the context of short-term orientations,
interdependence asymmetry had a negative effect on distributor satisfaction, while with
long-term orientation, interdependence asymmetry had no effect on distributor
satisfaction. In other words, with the parties’ long-term orientation, dependence
asymmetry does not matter in a relationship. During the initial period of the buyer-seller
relationship, long-term orientation has not been established. The relationships in the
initial period should be in the context of short-term orientation. Therefore, Hypothesis 11
is proposed for the initiation stage and the maintenance stage of the retailer-supplier
relationship:

H1118: At the long-term relationship initiation stage, a Chinese retailer’s perception of
dependence asymmetry influences the relationship strength between its supplier’s role
performance and its economic satisfaction. The relationship is stronger for powerful
retailers than for weaker retailers.

H11 lb: At the long-term relationship initiation stage, a Chinese retailer’s perception of
dependence asymmetry influences the relationship strength between its supplier’s role
performance and its social satisfaction. The relationship is stronger for weak retailers
than for powerful retailers.

Hml 1a: At the relationship maintenance stage, a Chinese retailer’s perception of
dependence asymmetry does not influence the relationship strength between its supplier’s

role performance and its economic satisfaction.

42

Hml 1b: At the relationship maintenance stage, a Chinese retailer’s perception of
dependence asymmetry does not influence the relationship strength between its supplier’s
role performance and its social satisfaction.
Antecedent of Long-term Orientation: Deppndence

Ganesan's (1994) study on retail department store chains and their suppliers
shows that a supplier’s credibility trust, together with a retailer’s dependence on the
supplier, are positively related to long-term orientation. Lusch and Brown (1996) found a
wholesaler’s high dependence on a supplier increases the wholesaler’s long-term
orientation. Yu and Pysarchik (2002) reported that the cosmetic retailers’ dependence on
their suppliers is positively related to their long-term orientation. None of these studies,
however, separate the relationships into initiation stage and maintenance stage.
Narayandas and Rangan (2004) conducted a longitudinal study on three buyer-seller
dyads’ relationships in a mature industrial market. They found that during the
relationship maintenance stage, it is the presence of interpersonal trust in buyer-seller
relationships that facilitates the development of inter-organizational commitment. Kim’s
(1998) study of the effects of perceived interdependence on distributor attitudes found
that in the context of short-term orientations, interdependence asymmetry had a negative
effect on distributor satisfaction, while in long-term orientations, interdependence
asymmetry had no effect on distributor satisfaction. Kim and Oh (2002) found that
interdependence asymmetry has no effect on distributor’s commitment when long-term
orientation is institutionalized. Izquierdo and Cillan (2004) found that in some cases, the
lack of trust may reduce the intention of maintaining the relationship, even if the

economic dependence is high. In other words, the perception of a power/dependence

43

difference between partners will not influence each party’s behavior after a long-term
relationship is established.

During the initial period of the buyer-seller relationship, this relationship should
be in the context of short-term orientation. Hence, it can be concluded from the
discussion above that during the relationship initiation stage, power/dependence has
effects on the relationship formation, while during the relationship maintenance stage
(when long-term orientation is formed); power/dependence has no effect on relationship
maintenance. Therefore, Hypothesis 12 is proposed for the initiation stage and the
maintenance stage of the retailer-supplier relationship:

H.12: At the long-term relationship initiation stage, a Chinese retailer’s dependence on its
supplier is positively related to the retail buyers’ long-term orientation.

Hm12: At the long-term relationship maintenance stage, a Chinese retailer’s dependence
on its supplier is not related to the retail buyers’ long-term orientation.

Rival Models

An emerging consensus in structural equation modeling indicates that researchers
should compare rival models, not just test a proposed model (Bollen & Long, 1992).
There is little evidence showing that the relationships between constructs could be
different at different retail buyer-seller relationship development stages. J ap and
Ganesan’s (2000) study is the only study related to this issue; however, they focused on
the relationship between transaction specific investment and commitment. No other
studies separated relationships into different stages. It is obvious that those researchers
assumed that there are no differences in the relationships among constructs at different

relationship development stages. In this study, one way to test this assumption is to test

the two rival models. The model for relationship initiation stage serves as a rival model
for the relationship maintenance stage. Similarly, the model for relationship maintenance
stage serves as rival model for the relationship initiation stage. If a bad fit is found for the
two rival models, the assumption that relationships among constructs are the same at
different development stages of buyer-seller relationship should be wrong, and it would
be necessary to investigate causal relationships at different stages.
Summary

The proposed differences between the two models for the long-term relationship
initiation stage and the maintenance stage are summarized as follows:
1) Economic satisfaction and social satisfaction are positively related to long-term
orientation at the long-term relationship initiation stage, but not at the maintenance stage.
2) Opportunism does not have a direct effect on long-term orientation at the long-term
relationship initiation stage but does have an effect at the maintenance stage.
3) Guanxi behaves differently at the two stages. Not only does it associate with different
variables, but also its effects have an opposite sign at the two stages. At the long-term
relationship initiation stage, guanxi is negatively related to social satisfaction and long-
terrn orientation. However, at the maintenance stage, it is positively related to economic
satisfaction.
4) Dependence asymmetry has a moderator effect on the relationship between seller’s
role performance and economic satisfaction / social satisfaction at the long-term
relationship initiation stage, but not at the maintenance stage.
5) Dependence is positively related to long-term orientation at the long-term relationship

initiation stage, but not at the maintenance stage.

45

The proposed similarities between the two models for the retailer-supplier long-
tenn relationship initiation stage and the maintenance stage are summarized as follows:
1) For both stages, role performance is positively related to economic satisfaction and
social satisfaction.

2) For both stages, role performance is positively related to benevolence trust and
credibility trust.

3) For both stages, opportunism is negatively related to benevolence trust and credibility
trust. For both stages, the relationship between benevolence trust and opportunism is
stronger than the relationship between credibility trust and opportunism.

4) For both stages, economic satisfaction is positively related to benevolence trust; social
satisfaction is positively related to credibility trust.

5) For both stages, economic satisfaction and social satisfaction are positively correlated;
benevolence trust and credibility trust are positively correlated.

6) For both stages, benevolence trust is not related to long-term orientation; credibility
trust is positively related to long-term orientation.

Figures 2 and 3 present the overall framework of the research.

46

  

 

   
 

    

            

      

   

  

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CHAPTER 3

METHODOLOGY

Instrumentation

The premise for this paper was developed through a series of in-depth interviews
conducted in 2000 with Chinese retailers. During these interviews, the buying decision
process was examined. These interviews focused on individual buyers and administrative
committee decision-makers. Results from this qualitative portion provide us with an
understanding of retailers in China. We found that there is some similarity between the
US. retail buyer-seller relationships and the Chinese retail buyer-seller relationships. For
example, in both cultures, a buyer’s trust is formed from an evaluation of the experience
with a partner. Based on the above-mentioned personal interviews, the instruments from
western literature can be adapted to apply in this study. Bilingual, native-speaking
doctoral students translated the English questionnaire to Chinese, and then a blind back
translation was used to insure construct equivalence (Mullen, 1995).

In the second phase of the study, a survey was conducted in China.
Questionnaires were completed by buyers or managers who were responsible for
selecting vendors and products. The buyers/managers were asked to focus on a new
product (new SKU) they had added within the last year, but not one they have carried for
less than six months, and to answer the questions with the supplier of that new product in
mind. This was to ensure that the buyer/manager had sufficient experience to assess the
supplier. We asked them to focus on a new product because that improves the possibility
of getting retailers’ responses of new suppliers. The respondents were also guaranteed

anonymity since Alder, Compbell, and Laurent (1989) reported that under the condition

49

of anonymity, Chinese managers are more willing and more likely to provide accurate
information.
Measures

The key variables in the conceptual framework were operationalized using multi-
item reflective scales (Bollen & Lennox, 1991) drawn from the literature (see Appendix
for scale sources). Exceptions are role performance, which is formative, and dependence
asymmetry, which is categorical.

For role performance, prestudy interviews identified five basic elements of the
manufacturer’s role in the channel relationship with retailers in China: 1) reasonable
margin for retailers, 2) uniqueness of products, 3) delivery of goods, 4) well
known/respected brands, and 5) product quality. Each retailer indicated how well his/her
manufacturer performed in comparison with an industry average performance on each
role element (-5 = very poor through 0 = average performance to 5 = very good). The
performance ratings were summed to yield an index of manufacturer role performance in
the channel relationships, with higher scores indicating higher role performance.

For scales of all constructs please see the Appendix, which contains a description
of response formats, the specific items for each scale and their sources, and Cronbach
coefficient alphas from the literature.

Data Collection
Sampling Reality: Convenience Data

Because large-sample, firm-level data are very difficult to collect in China (Lucas,

Tan, & Hult, 2001), a convenience sample was used. It is composed of 100 respondents

from 25 cities. The sample of retailers was assembled from participants in a retailing

50

seminar held in Shanghai and Beijing. Questionnaires were distributed and collected
before the seminars.
Sample Characteristics

Although data were collected from a convenience sample, the data indicates
varieties in ownership, sales ranking, and economic development region. Among the
respondents, 49.5% are from state owned enterprises (SOE), 11% from privatized former
SOEs, 13.1% from firms with FDI (foreign direct investment), 21.2% from domestic
organic firms and 1% from other types of ownership. In terms of sales ranking, among
the respondents, 6.1% are from the top 1-10, 22% from those ranked 11-20, 7.3% from
21-30, 6.1% from 31-40, 2.4% from 41-50, 4.9% from 51-60, 1.2% from 61-70, 2.4%
from 71-80, 4.9% from 81-90, 4.9% from 91-100, and 37.8% from retailers that ranked
below 100. There are eight areas of economic development represented (Academy of
Science China Modernization Research Center, 2004): the East China Coast area, the
South China Coast area, the Yangtze River middle reaches area, the Northeast area, the
North China Coast area, the Yellow River middle reaches area, the Southwest area, and
the Northwest area. Among the respondents, 43.7% are from the East China Coast area,
8.0% from the South China Coast area, 24.1% from the Yangtze River middle reaches
area, 3.4% from the Northeast area, 16.1% from the North China Coast area, 2.3% from
the Yellow River middle reaches area, 1.2% from the Southwest area and 1.2% from the
Northwest area. In addition, 68.7% of the respondents are male and 29.3% are female.
Data Analysis

Narayandas and Rangan (2004) did a longitudinal study on three buyer-seller

dyad relationships in a mature industrial market. They found that buyer-seller

51

relationships are personal. Therefore, the classification of the relationship stages is based
on the length of the respondents’ personal business relationship with their suppliers. In
this study, fifty percent of the respondents have less than two years of personal business
relationships with the supplier; this is considered the initiation phase. Forty nine percent
of the respondents have three or more years personal business relationship with the
supplier; this is considered the maintenance phase.

Overall Model Fitting

Path analyses was used to test the causal relationships. Due to the small sample
size, full structural model testing was not feasible. Composite scales were derived by
summing items. Covariance of factors provided data input for the path models.

A sample size with n=100 is small for a model with ten constructs. Because of the
small sample size, fit indices (x2, RMSEA and CFI) that are not sensitive to sample size
were chosen to assess the model fit (Fan, Thompson, & Wang, 1999; Hoyle & Panter,
1995; Hu & Bentler, 1995). These fit indices, however, are sensitive to model
misspecification.

The chi-square statistic is an absolute measure of model fit. Although useful as a
general fit indicator, it is biased in complex models, and in models with a large number of
indicators. So, other fit indices are needed. RMSEA (Root Mean Square Error of
Approximation) measures how well the model would fit the population covariance
matrix, if available. Index values less than 0.05 indicate good fit, while those ranging
from 0.08 to 0.10 are moderately acceptable (Byme, 1998). Accuracy of RMSEA
estimates are assessed using Lisrel’s 90% confidence interval. A narrow confidence

interval around the RMSEA estimate suggests good precision and model fit in the

52

population (Steiger, 1990; MacCallum, Brown & Sugauara, 1996). CFI is an incremental
fit indice, comparing the hypothesized model to a null model. Perfect fit for CFI is 1.0.
Model Testing and Estimation Procedure for the Small Sample

The scale reliability of the measures used in this study was examined by assessing
their internal consistency (average correlation among items within each construct).
Cronbach’s coefficient alpha (Cronbach, 1951) was calculated for each of the scales used
(See Appendix). For role performance, credibility trust, benevolence trust, guanxi,
dependence, economic satisfaction, long-term orientation and opportunism, their
coefficients ranged from 0.62 to 0.89 and were thus acceptable using Robinson, Shaver,
& Wrightsman's (1991) criterion of coefficient alpha being greater than 0.60 for an
exploratory study (Robinson, Shaver, & Wrightsman, 1991). For social satisfaction, the
coefficient is 0.53. Because there are eight economic development regions, the coefficient
alpha for social satisfaction is calculated for each region. The coefficient alpha is not
available for four regions because we did not have enough cases. Except for the East
China Coast area, where Shanghai is located, all the other areas generated high alphas
ranging from .62 to .78. For the East China Coast area, it is only .31. Those reversed

items seem to have more influence on respondents in the East China Coast area than in
other areas. Bloom (1981) indicated that counterfactual statements create linguistical

problems for East Asian language speakers.

53

The models shown in Figures 2 and 3 are represented by the following set of
equations:
The model for retailers at the long-term relationship initiation stage, retailers

whose buyers have two or less years experience in dealing with their suppliers, is:

ESAT = 0.1+ BilaROLE

SSAT = (142+ BileOLE + BigGUANXI+ Bi6OPP

BTRUST = an + BmROLE + Bi3aESAT + B,5,OPP

CTRUST = on, + B,2bROLE + Bi3bSSAT + BistPP

LONGT = 0:45 + BigaESAT + BnaBTRUST + Bi7bCTRUST+BingSAT+ BnoGUANXI +

B, 1 zDEP

The model for retailers at the long-term relationship maintenance stage, retailer

buyers who have three or more years experience in dealing with their suppliers, is :

ESAT = am. + Bm.,ROLE + BmloGUANXI

SSAT = am2+ BmleOLE + BmOPP

BTRUST = 0cm; + BMROLE + Bm33ESAT + Bm530PP

CTRUST = am, + BmZbROLE + BmngSAT + BmstPP

LONGT = arms + BmgaESAT + BmyaBTRUST + Bm7bCTRUST+Bm3bSSAT+ Bm90PP+

BmlzDEP

ESAT = retailer’s economic satisfaction

SSAT = retailer’s social satisfaction

54

CTRUST = retailer’s credibility trust in its supplier

BTRUST = retailer’s benevolence trust in its supplier

LONGT = retailer’s long-term orientation

GUANXI = guanxi practice

OPP = retailer’s perception of its supplier’s opportunistic behavior (opportunism)
DEP = retailer’s dependence on its supplier

ROLE = retailer’s perception of its supplier’s role performance

(1,, , 01mg, Big, and Bmi are parameters.

These equations were estimated using the LISREL statistics computer package,
version 8.20. The path coefficients estimated by this package may be interpreted as
partial correlation coefficients as noted in Duncan’s (1975) study. Results are listed in
Tables 1 and 2.

These equations did not test all the hypotheses. Hi4a, Hi4b, Hm4a, Hm4b were

tested by freeing the covariance of ESAT and SSAT, BTRUST and CTRUST during the

path analyses and checking the significance of the covariance estimates. HiSC, Hm5c were

tested by running two nested models. The Bag: Bisb, Bm5a= Bmsb were constrained and the

chi-square statistic evaluated to determine if it is significantly different from the original
model fit. Results are listed in Tables 1 and 2.

When the sample size is small, it is not possible to run multi-group analysis with

the two full models. Hgl la, Hi1 lb, Hml 1a and Hml 1b can only be tested by running equal

regressions on the paths of role performance to economic satisfaction, and role

performance to social satisfaction. For long-term relationship initiation stage retailers, the

equations, ESAT=oq + BnROLE; SSAT-20:,” + B“ ’ROLE + BiZOPP + BigGUANXI were

55

tested across the powerful retailer group and the weak retailer group first, respectively,
and then tested across the powerful retailers, weak retailers and equally powerful
retailers, respectively. For long-term relationship maintenance stage retailers, the
equations ESAT=0£m + BmlROLE + Bszuanxi; SSAT=0tm’ + Bml ’ROLE + Bmz’OPP
were tested following the same procedure as relationship initiation stage retailers. Results

are listed in Tables 3 and 4.

56

CHAPTER 4

RESULTS

The results of the path analyses are shown in Tables 1 and 2. Both the path
coefficients and the measures of model fit are listed.
Overall Fit of the Models

Recall that there were two models constructed to explain the relationships among
variables; the first model was constructed for the initiation stage of the buyer-seller
relationship, and the second for the maintenance stage.

The model for the initiation stage fits the data well, although the 90% confidence
interval appears broad due to the small sample size (x2 (12) = 13.68, p = .32; RMSEA =
.044; 90% confidence interval [CI] = (.0, .17); CFI = .99). If the model is reconstructed
excluding the path from benevolence trust to long-term orientation, a path previously
hypothesized as being non-significant, the chi-square statistic and fit indices improve (x2
(13) = 13.74, p = .39; RMSEA = .012; 90% CI (.0, .15): CFI = 1.00). Conversely, the
rival model for the relationship initiation stage shows very poor fit to the data (x2 (12) =
40.73, p = .0, RMSEA = .23; 90% CI (.15, .31); CFI = .81).

The model constructed to explain relationships at the maintenance stage also fits
the data well, although the 90% confidence interval appears broad due to the small
sample size ()52 (12) = 12.45, p = .41; RMSEA = .002; 90% CI (.0, .16); CFI = 1.00). If
the model excludes the four paths - from benevolence trust to long-term orientation, from
economic satisfaction to long-term orientation, from social satisfaction to long-term
orientation, and from dependence to long-term orientation (all of which previously had

been hypothesized as non-significant), the chi-square statistic and fit indices reveal an

57

even better model fit (x2 (11) = 7.59; p = .75; RMSEA = .0; 90% CI (.0, .11): CFI =
1.00). Conversely, the rival model for the relationship maintenance stage shows very
poor fit to the data (7(2 (12) = 28.43, p = .005; RMSEA = .14; 90% CI (.044, .23); CFI =
.86).
Hypothesis Testing

Support was found for most of the hypothesized relationships in the models
(Tables 1, 2, 3, and 4). Hypothesis testing results are presented as follows.
Satisfaction

Role performance was hypothesized to be positively related to economic
satisfaction, at both the relationship initiation stage (Hila) and the relationship
maintenance stage (Hmla). As expected, the statistical results support the relationship
between role performance and economic satisfaction, at both stages (Bila=.32, p<.05;
Bmla=.64, p<.01). Therefore, the hypotheses Hila and Hmla are both supported by the
data. Role performance also was hypothesized to be positively and significantly related to
social satisfaction for both stages (hypotheses Hilb and Hmlb). Data reveal conflicting
results. There is a positive relationship between role performance and social satisfaction
at the relationship maintenance stage (Bm.b=.35, p<.01), but not at the relationship
initiation stage (Bub=.02, p>.05). Therefore, Hilb is not supported, but Hmlb is
supported.
Iru_st

Trust is the key antecedent of long-term orientation. To investigate the
antecedents of trust or the mechanism of trust formation, role performance was

hypothesized to have direct positive and significant effects on benevolence trust and

58

credibility trust, both at the relationship initiation (Hi2a and H52b) and maintenance stages
(Hm2a and Hm2b). Results support the primary hypothesis that role performance is
positively associated with benevolence trust at the relationship initiation stage (Bi2,=.26,
p<.05), but not at the relationship maintenance stage (Bm2a=.01, p>.1). Therefore, H32a is
supported, but Hm2a is not. However, results support the hypotheses that role
performance is positively related to credibility trust at both the relationship initiation
stage and the maintenance stage (Bi2b=.37, p<.01; Bm2b=.48, p<.01). Consequently, both
Hi2b and Hm2b are supported by the data.

Economic satisfaction was proposed to be an antecedent of benevolence trust, and
social satisfaction was proposed to be an antecedent to credibility trust at both the
relationship initiation stage (Hi3a and Hi3b) and the maintenance stage (Hm3a and Hm3b).
Results for these proposed relationships are mixed. Economic satisfaction does appear to
foster benevolence trust at the relationship maintenance stage (Hm3a) (Bm33=.4l, p<.01),
but not at the relationship initiation stage (Hi3a)(Bi3,=.l6, p>.05). Therefore, Hm3a is
supported but Hi3a is not. On the contrary, social satisfaction fosters credibility trust at
the relationship initiation stage (Hi3b) (Bi3b=.47, p<.01), but not at the relationship
maintenance stage (Hm3b) (Bm3b= -.01, p>0.l). Consequently, Hi3b is supported, but
Hm3b is not.

Because economic satisfaction and social satisfaction are two components of the
construct of satisfaction, economic satisfaction was proposed to be positively correlated
with social satisfaction, again at both stages (Hi4a and Hm4a). This, in fact, is found to be

true during relationship initiation ((biESAT-SSAT =.23, p<.05), but not during relationship

maintenance ((<1>mESAT.SSAT =.12, p>.05). Hence, Hi4a is supported, but Hm4a is not.

59

Because benevolence trust and credibility trust are two components of trust,
benevolence trust and credibility trust were proposed to be positively correlated at both
stages as well (Hi4b and Hm4b), and both hypotheses are supported (Cbigmusmcmus-r
=.15, p<.05; (meTRUST-CI'RUST =.35, p<.01).

Opflrtunism

Opportunism is expected to destroy trust between retail buyers and sellers at both
the relationship initiation and maintenance stages. Hence, opportunism was hypothesized
to be negatively related to benevolence trust and credibility trust, both during the
relationship initiation stage (Hi5a and HiSb) and the maintenance stage (HmSa and Hme).
Opportunism also was proposed to have a stronger relationship with benevolence trust
than with credibility trust at both stages (Hi5c and Hm5c). Data indicate that there are
negative effects of opportunism on benevolence trust and credibility trust at the initiation
stage (HiSa and HiSb) (B53: -.45, p<.Ol; Bi5b= -.28, p<.01), but not at the maintenance
stage (HmSa and Hme) (Bm5a= -.09, p>.1; Bm5b= -.16, p>.1). Therefore, HiSa and HiSb are
supported, but HmSa and Hme are not. Although at the relationship initiation stage, the
absolute value of BiSa is found to be larger than the absolute value of BiSb, the results
reject the primary hypothesis that benevolence trust has a stronger negative relationship
with opportunism than credibility trust does (Hi5c); the chi-square change after
constraining Bisa = Bist, is not significant at the 0.05 level (Ax2(l)=1.87, p>.05). Because
both Bmsa and Bmsb are not significantly different than zero, we reject Hm5c, the primary
hypothesis that benevolence has a stronger negative relationship with opportunism than

credibility trust does at the relationship maintenance stage.

60

Opportunism also was hypothesized to lead to social dissatisfaction at both the
relationship initiation (Hi6) and maintenance stage (Hm6). Results support this negative
relationship between opportunism and social satisfaction at both stages (Hi6: Bis: -.46,
p<.01; and Hm6: Bm6= -.30, p<.05, respectively.)

Long-term Orientation

Benevolence trust was not believed to be an antecedent of long-term orientation at
either the relationship initiation (Hfla) or maintenance stage (Hm7a) and results, indeed,
identify no direct significant relationship at either stage (Baa: -.03, p>.05 and Bum: -.13,
p>.05, respectively.) Therefore, both hypotheses, Hi7a and Hm7a, are supported.
Conversely, credibility trust was proposed to be an antecedent of long-term orientation
for both stages (Hi7b and Hm7b), and data again bear that out (Bub: .40, p<.05; Bm7b=
.29, p<.05); so, both Hi7b and Hm7b are supported.

Economic satisfaction and social satisfaction were conjectured to be antecedents
of long-term orientation for the initiation stage (Hi8a and Hi8b), but not for the
maintenance stage (Hm8a and Hm8b). Results indicate that there is a positive significant
relationship between economic satisfaction and long-term orientation during buyer-seller
relationship initiation (Riga: .22, p<.05). Hi8a is supported, but there is no direct
significant relationship identified between social satisfaction and long-term orientation
during initiation (Bab: -.09, p>.1); therefore, Hi8b is rejected. Neither economic
satisfaction nor social satisfaction is directly associated with long-term orientation during
relationship maintenance (Bmga= .05, p>.1; Bm3b= .04, p>.1); both of the hypotheses,

Hm8a and Hm8b, are supported.

61

At the relationship maintenance stage, opportunism was presumed to have a direct
negative effect on long-term orientation (Hm9). Results support Hm9, that there is a
negative relationship between opportunism and long-term orientation (Bm9= -.33, p<.05).
Guanxi Practice

We believed that the relationship between guanxi practice and other constructs
would be different between the two relationship stages. For the relationship initiation
stage, guanxi practice was predicted to be negatively related to social satisfaction (Hi9)
and long-term orientation (HiIO). A negative relationship between guanxi practice and
social satisfaction is found (B19: -.29, p<.05), so that H9 is supported. A negative
relationship between guanxi practice and long-term orientation also is identified (Bi10= -
.40, p<.05), so that H510 also is supported.

During the maintenance stage of a buyer-seller relationship, guanxi practice was
hypothesized to be positively related to economic satisfaction (Hm10). Results indicate a
positive relationship between guanxi and economic satisfaction at the relationship
maintenance stage (Emu): .52, p<.01). Therefore, HmIO is supported.
Power/Demndence

Power/dependence asymmetry was proposed to have a moderating effect on the
relationship between role performance and economic satisfaction, and on the relationship
between role performance and social satisfaction. The relationship between role
performance and economic satisfaction also was proposed to be stronger for powerful
retailers than for weaker retailers at the relationship initiation stage (Hi1 1a); whereas, at
the relationship maintenance stage, it was proposed that there should be no difference in

the strength of the relationship between role performance and economic satisfaction

62

(Hml la). At the relationship initiation stage, because both coefficients (Bm) are not
significantly different from zero, results indicate that there is no difference between
powerful retailers and weaker retailers in the relationship strength between role
performance and economic satisfaction; hence, Hi1 1a is not supported. At the relationship
maintenance stage, when constraining the two coefficients (Bmla) for powerful retailers
and weaker retailers as equal, there is no apparent difference between powerful retailers
and weaker retailers on the relationship between role performance and economic
satisfaction (x2 (1) = .09; p = .76; RMSEA = .0; 90% CI (.0, .49), CFI = 1.00). Therefore,
Hml 1a is supported.

The relationship between role performance and social satisfaction was believed to
be stronger for weaker retailers than for powerful retailers at the relationship initiation
stage (Hi1 1b); whereas, at the relationship maintenance stage, it was surmised that there
should be no difference in the strength of the relationship between role performance and
social satisfaction (Hml lb). At the relationship initiation stage, constraining the two
coefficients (Bub) for powerful retailers and weaker retailers so that they are equal, there
is a difference between powerful retailers and weaker retailers in the relationship strength
between role performance and social satisfaction (x2 (2) = 27.51; p = .0; RMSEA = .53;
90% CI (.24, .88); CFI = .0). Moreover, the Bub for the weaker party, of 0.48, is found to
be larger than the Bin, for the powerful party (-.13). Therefore, Hil 1b is supported. At the
relationship maintenance stage, because both coefficients (Bmlb) for powerful retailers
and weaker retailers are not significantly different from zero, results indicate that there is
no difference between powerful retailers and weaker retailers in the relationship strength

between role performance and social satisfaction. Therefore, Hml lb is supported.

63

Dependence was hypothesized to be positively related to long-term orientation at
the relationship initiation stage (Hi12), but not at the relationship maintenance stage
(Hm12). A positive and significant relationship between dependence and long-term
orientation is identified for the relationship initiation stage (Bin = .33, p < .01), so that
H312 is supported. No similar direct relationship is evident during the maintenance stage
(Bmlz = .01, p > .05), so Hm12 also is supported.

The model of the relationship initiation stage is estimated to explain 10% of the
variance in economic satisfaction, 36% of the variance in social satisfaction, 38% of the
variance in benevolence trust, 64% of the variance in credibility trust, and 45% of the
variance in long-term orientation. The model for the relationship maintenance stage
explains 43% of the variance in economic satisfaction, 17% of the variance in social
satisfaction, 19% of the variance in benevolence trust, 30% of the variance in credibility

trust, and 25% of the variance in long-term orientation.

Table 1. Results of the Path Analysis for the Relationship Initiation Stage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standardized T- Su rt
Path Parameter Estimate Value lnon-[s’rlr’p’port
ROLE—) ESAT“ Bila 0.32 2.18 1-11 la supported
ROLE—> SSAT“ B... 0.02 0.20 8:131:32;
ROLE-e BTRUST Baa 0.26 2.01 Hi2a supported
ROLE—>CI‘RUST* Bab 0.37 4.01 Hi2b supported
ESAT—>BTRUST B... 0.16 1.37 1’53 “0‘
supported
SSAT—>CT RUST Bab 0.47 4.58 Hi3b supported
ESATHSSAT (biESAT-SSAT 0.23 1.90 Hi4a supported
BCFTBRJSSFT? 4);:‘38’?’ 0.15 2.05 Hi4b supported
OPP—>BTRUST Bisa -0.45 -3.66 Hi5a supported
OPP—>CT RUST BiSb -0.28 -2.60 HiSb supported
OPP—)BTRUST > After constraining B153: 3151;. H350 not
OPP—>CTRUST Ax2(1)=1.87 supported
OPP—>SSAT* B“, -0.46 -3.78 Hi6 supported
BTRUST---LONGT* B37a -0.03 -0.23 Hi7a supported
CTRUST—>LONGT’“ Bi7b 0.40 2.25 Hi7b supported
ESAT—>LONGT Biga 0.22 1.85 HiSa supported
SSAT—ILONGT“ 13.3., -0.09 -055 High “°‘
supported
GUANXI—>SSAT Big -0.29 -2.40 Hi9 supported
GUANXI—ILONGT Bno -0.40 -3.08 mm supported
DEPASYM: Results from Table 4 Hi1 1a not
ROLE—>ESAT (Relationship initiation stage, 2-group) supported
DEPASYM: Results from Table 5 H- 1 lb supported
ROLE—)SSAT (Relationship initiation stage, Z-goup) '
DEP—>LONGT an 1 0.33 ] 2.81 11.12 supported
Overall model fit with path Overall model fit with path
BTRUST-«LON GT specified in the BTRUST---LONGT not specified in the
model model
x202) =13.68 (P=0.32) x2(13)=13.74 (P=0.39)
RMSEA=0.044, RMSEA=0.012,
90% confidence interval=(0.0, 0.17) 90% confidence interval=(0.0, 0.15)
CFI=0.99 CFI=1.00

 

 

 

*indicates the same relationships as at the relationship maintenance stage

65

 

Table 2. Results of the Path Analysis for the Relationship Maintenance Stage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standardized T- Support
Path Parameter Estimate Value lnonsupport

ROLE—)ESAT“ Bmla 0.64 5.36 Hmla supported

ROLE—>SSAT'“ Bmlb 0.35 2.62 Hmlb supported
ROLE—>BTRUST BmZa 0.01 0.07 Hm2a not supported

ROLE—>CTRUST* BmZb 0.48 3.37 Hm2b supported

ESAT—IBTRUST Bm3a 0.41 2.99 Hm3a supported
SSAT—>CT RUST Bm3b -0.01 -0.08 Hm3b not supported
ESATHSSAT q’mBSAT' 0.12 1.25 Hm4a not supported

SSAT
BTRUST (-) (meTRUST-

CTRUST* chusr 0.35 2.78 Hm4b supported
OPP—IBTRUST Bmsa -0.09 -0.63 HmSa not supported
OPP—>CTRUST Bmsb -0. 16 -1. 13 Hme not supported

OPP—IBTRUST > Both Bm53 and Bmsb are not
OPP—)CTRUS'I‘ significantly different from zero. Hm5c not supported
OPP—)SSAT“ Bmo -0.30 -2.29 Hm6 supported
BTRUST-«LONGT Bm7a -0. 13 -0.80 Hmla supported
CTRUST—ILONGT’“ Bm7b 0.29 1.85 Hm7b supported
ESAT-«LONGT Bmga 0.05 0.32 Hm8a supported
SSAT---LONGT Bmgb 0.04 0.26 Hmr8b supported
OPP—)LONGT Bmo -0.33 -2.20 Hm9 supported
GUANXI—IESAT Bmlo 0.52 4.44 Hm10 supported
Results from Table 4
DEPASYM: . . .
R OLE—)ES AT (Relatronshrp marntenance stage, 2- Hml 1a supported
grow)
Results from Table 5
DEPASYM: . . .
R OLE—>S S AT (Relatronshrp rglaorplgnance stage, 2- Hml lb supported
DEP-«LONGT B...” 1 0.01 I 0.10 Hm12 supported

 

Overall model fit with paths
BTRUST-«LON GT, ESAT-~-
LONGT, SSAT-«LONGT, DEP---
LONGT
specified in the model

Overall model fit with paths
BTRUST-«LONGT, ESAT-«LONGT,
SSAT---LONGT, DEP-«LONGT
not specified in the model

 

x2(12)=12.45 (P=0.41)
RMSEA=0.0022,
90% confidence interval=(0.0, 0.16)
CFI=1 .00

 

x201) =7.59 (P=0.75)
RMSEA=0.0,
90% confidence interval=(0.0, 0.11)
CFI=1.00

 

 

*indicates the same relationships as at the relationship initiation stage

66

 

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68

CHAPTER 5

DISCUSSION

Results provide support for the proposed models (Figures 2 and 3). As proposed,
differences between the initiation and maintenance stages of relationships were
supported. There are six proposed differences between the two models for the long-term
relationship initiation and maintenance stages:

1) Economic satisfaction and social satisfaction are positively related to long-term
orientation at the long-term relationship initiation stage, but not at the
maintenance stage.

2) Opportunism does not have a direct effect on long-term orientation at the long-
term relationship initiation stage, but does have an effect at the maintenance
stage.

3) Guanxi behaves differently during the two stages. Not only does it associate
with different variables, but also its effects are opposite during the two stages.
During the long-term relationship initiation stage, guanxi is negatively related
to social satisfaction and long-term orientation. However, during the
maintenance stage, it is positively related to economic satisfaction.

4) Dependence asymmetry has a moderating effect on the relationship between a
seller’s role performance and economic satisfaction / social satisfaction at the
long-term relationship initiation stage, but not at the maintenance stage.

5) Dependence is positively related to long-term orientation at the long-term

relationship initiation stage, but not at the maintenance stage.

69

The model for the relationship initiation stage serves as a rival model for the

relationship maintenance stage. Similarly, the model for the relationship maintenance

stage serves as a rival model for the relationship initiation stage. However, the two rival

models both have a very poor fit.

The results show that the differences between the two stages are:

1) Role performance is positively related to benevolence trust at the relationship
initiation stage, but not at the maintenance stage.

2) Economic satisfaction is not directly related to benevolence trust at the
relationship initiation stage, but is related to benevolence trust at the
maintenance stage.

3) Social satisfaction is positively related to credibility trust at the relationship
initiation stage, but not at the maintenance stage.

4) Economic satisfaction and social satisfaction are positively correlated at the
relationship initiation stage, but not during the maintenance stage.

5) Opportunism is negatively related to benevolence trust and credibility trust at
the relationship initiation stage, but not during the maintenance stage.

6) Economic satisfaction is positively related to long-term orientation at the
relationship initiation stage, but not at the maintenance stage.

7) Guanxi behaves differently at the two stages. Not only does it associate with
different variables, but also its effects have an opposite sign in the two stages.
At the long-term relationship initiation stage, guanxi is negatively related to
social satisfaction and long-term orientation. However, during relationship

maintenance, it is positively related to economic satisfaction.

70

8) Dependence asymmetry has a moderating effect on the relationship between
the seller’s role performance and social satisfaction at the long-term
relationship initiation stage, but not at the maintenance stage.

9) Dependence is positively related to long-term orientation at the long-term
relationship initiation stage, but not at the maintenance stage.

These results challenge the traditional assumption that there is no difference in
channel relationships at different development stages. These results suggest that channel
research should consider relationship development stages.

Satisfaction

This study investigated the two components of satisfaction - economic satisfaction
and social satisfaction. It, therefore, answers Geyskens and Steenkamp’s (2000) call to
study economic satisfaction and social satisfaction separately. During both relationship
initiation and maintenance stages, the supplier’s role performance is positively related to
a retailer’s economic satisfaction. However, the relationship between a supplier’s role
performance and a retailer’s social satisfaction seems to be different between the two
stages. The supplier’s role performance is found to be positively related to the retailer’s
social satisfaction only during the relationship maintenance stage. However, this holds
true for powerful retailers only. Role performance is positively related to social
satisfaction at the relationship initiation stage for weak retailers and retailers that have
equal power with their suppliers (Table 5 — A three-group comparison between powerful
retailers, weaker retailers and equally- powerful retailers with respect to the relationship

between role performance and social satisfaction).

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The difference in the relationship between role performance and social
satisfaction for powerful retailers, at the relationship initiation and maintenance stages,
can be explained as follows. In a market where retailers have power, any supplier will try
its best to satisfy a powerful retailer during the initial stages of a relationship. Therefore,
a powerful retailer does not need an evaluation process for interactions with its partner
because interactions always will be towards the best. When a long-term orientation is
formed, the dependence asymmetry between parties does not affect the relationship.
Therefore, during the relationship maintenance stage, powerful retailers are at the same
level as other retailers with regard to the relationship between role performance and
social satisfaction.

If the dependence asymmetry’s effect is not considered, these findings are
consistent with social exchange theory (Kelley & Thibaut, 1978; Thibaut & Kelley,
1959), which states that there is an evaluation process at different relationship stages.
These findings also are consistent with several conceptual process models of relationship
development in marketing (e.g., Anderson, 1995; Ford, 1990; Hakansson, 1982;
Hakansson & Wootz, 1979; Nevin, 1995). Those models imply that partners evaluate
each other’s performance episodically. Superior supplier performance leads to retailer
economic satisfaction and social satisfaction at different stages of the relationship.
Therefore, the retailer has a means by which to evaluate the supplier’s role performance
during both the initiation and maintenance stages. Chinese food retailers will be satisfied
with a reasonable margin, unique product, good delivery, popular brands and good

quality products.

72

Trust

In the US, a retailer’s trust is process-based and is the result of a history of good
transactions with a given supplier (Zucker, 1986). Stemquist and Chen (in press) have
found that Chinese retailer relationships also are based upon evaluations of interaction
experience. Firms evaluate each other’s performance periodically (e.g., Anderson, 1995;
Ford, 1990; Hakansson, 1982; Hakansson & Wootz, 1979; Nevin, 1995; Wilson, 1995).
Hence, retailers periodically evaluate each supplier’s role performance. Economic
satisfaction and social satisfaction are the result of the evaluation, and are found to be the
antecedents of trust in the literature. This study investigates the two components of trust,
benevolence trust and credibility trust separately, consistent with Ganesan’s (1994) study.
Benevolence Trust

The relationship between a supplier’s role performance and a retailer’s
benevolence trust is different between the relationship initiation and maintenance stages.
Supplier’s role performance is positively related to retailer’s benevolence trust during the
relationship initiation stage, but not during relationship maintenance.

The relationship between economic satisfaction and benevolence trust also is
different between the relationship initiation and maintenance stages. Economic
satisfaction is not directly and significantly related to benevolence trust at the relationship
initiation stage, but is positively related to benevolence trust during maintenance.

These results suggest that, during the initial stages of a buyer-seller relationship,
role performance rather than economic satisfaction is the direct antecedent of

benevolence trust. Conversely, during relationship maintenance, economic satisfaction

73

rather than role performance is the direct antecedent of benevolence trust; economic
satisfaction becomes the mediator between role performance and benevolence trust.
Credibility Trust

During both relationship initiation and maintenance, role performance is
positively related to credibility trust. However, the relationship between social
satisfaction and credibility trust is different for the two relationship stages. Social
satisfaction is positively related to credibility trust at the relationship initiation stage, but
is not directly and significantly related to credibility trust at the relationship maintenance
stage.

This suggests that, early in relationships, both role performance and social
satisfaction are direct antecedents of credibility trust, and social satisfaction also is a
partial mediator between role performance and credibility trust. However, later in a
relationship, role performance is the only antecedent to credibility trust.

There is little research on the relationship between role performance or economic
satisfaction and benevolence trust. There also is little research on the relationship
between role performance or social satisfaction and credibility trust. Furthermore, there is
little research on these relationships at the two relationship stages.

Wilson’s (1995) buyer-seller relationship development process model proposed
that constructs have both an active phase, during which they are at the center of the
relationship development process, and a latent phase, during which they still are
important, but not under active consideration during relationship interactions. Wilson
(1995) defined an active construct as one that receives a great deal of manager time and

energy, and a latent construct as one in which the main issues have been settled to the

74

manager’s satisfaction and, therefore, one that does not receive time or attention.
Specifically, Wilson’s (1995) model proposed that satisfaction and trust are only active at
partner selection and defining purpose stages (early periods in the relationship initiation
stage in our model). When investigating two types of satisfaction and two types of trust
separately, this proposition does not explain what dependent variables those constructs
are, active or latent. Our study may help to answer this question. For example, role
performance is the active antecedent towards the formation of benevolence trust during
the relationship initiation stage, while economic satisfaction is the active antecedent
during relationship maintenance.

The same logic can be applied to credibility trust. At the relationship initiation
stage, both role performance and social satisfaction are antecedents of credibility trust. As
discussed earlier in this chapter, if we do not consider the effect of dependence
asymmetry, role performance should be significantly related to social satisfaction.
Therefore, in this sense, social satisfaction also is a partial mediator between role
performance and credibility trust at the relationship initiation stage. Answering the
question evoked by Wilson (1995) regarding credibility trust at the relationship initiation
stage, role performance and social satisfaction are the active antecedents; while at the
relationship maintenance stage, only role performance is an active antecedent.

Van Bruggen, Kacker and Nieuwlaat’s (2005) study of the relationship between
distributor and customer found that a distributor’s performance is positively related to a
customer’s trust. However, trust was not divided into the two components (benevolence
and credibility trust) as in our study; neither did they study the relationship at different

stages. In our study, at the relationship initiation stage, role performance is positively

75

related to both of the components of trust, which is consistent with their study. At the
relationship maintenance stage, while role performance is still positively related to
credibility trust, no direct relationship is found between role performance and
benevolence trust.

To solve the dilemma that no consensus had been established for the relationship
between satisfaction and some of its antecedents and consequences, Geyskens et al.
(1999) performed a meta-analysis on satisfaction. They found that economic satisfaction
is not directly related to trust, while non-economic satisfaction is positively related to
trust. A later study conducted by Yu and Pysarchik (2002) found that both economic and
non-economic satisfaction were positively related to trust among a sample of Korean
cosmetic retailers, a result conflicting with Geyskens et al’s findings (1999). By
segmenting Chinese retailer-supplier relationships into initiation and maintenance stages,
and investigating the two types of trust and two types of satisfaction separately, this study
illustrates different kinds of relationships at different stages, providing a clearer picture of
the relationship between satisfaction and trust.

At the relationship initiation stage, economic satisfaction is not directly related to
benevolence trust, while social (non-economic) satisfaction is related to credibility trust.
On the contrary, at the relationship maintenance stage, economic satisfaction is positively
related to benevolence trust, while social (non-economic) satisfaction is not directly
related to credibility trust. While further research is necessary to confirm these
relationships, it may explain the conflicts found among studies in which trust is not

divided into two components and relationship is not examined at different stages.

76

We found it surprising that during the initiation stage, when retailers form
benevolence trust, economic satisfaction is not a mediator or even a partial mediator
between a supplier’s role performance and benevolence trust. Similarly, it was surprising
that during maintenance of a retailer’s credibility trust, social satisfaction does not appear
to be a mediator or even a partial mediator between a supplier’s role performance and
credibility trust. Social exchange theory (Kelley & Thibaut, 1978; Thibaut & Kelley,
1959), several conceptual process models of relationship development in marketing (e.g.,
Anderson, 1995; Ford, 1990; Hakansson, 1982; Hakansson & Wootz, 1979; Nevin, 1995;
Wilson, 1995), and a longitudinal study (Narayandas & Rangan, 2004) all provide
arguments that retailers exercise periodic evaluations of a supplier’s role performance at
different stages. The evaluation process results in both economic satisfaction and social
satisfaction and, according to the literature (e.g., Batt, 2003; Ganesan, 1994; Garbarino &
Johnson, 1999; Geyskens et al., 1999; Selnes, 1998; Yu & Pysarchik, 2002), satisfaction
fosters trust. However, this is not totally true if we investigate economic satisfaction and
social satisfaction, and benevolence trust and credibility trust separately, at least among
Chinese food retailers.

Chinese food retailers seem to form their benevolence trust very quickly during
the relationship initiation stage, probably at the same time they are forming their
economic satisfaction by evaluating their suppliers’ role performance. If benevolence
trust is formed more slowly than economic satisfaction, there should be a relationship
between economic satisfaction and benevolence trust at the relationship initiation stage.
In other words, when Chinese food retailers make decisions regarding the acceptance of a

new product, their decision-making is straightforward and is independent of the

77

formation of economic satisfaction. The supplier’s role performance is the most
important factor. If retailers feel the supplier’s role performance is good and will bring
profit to the retailers, benevolence trust will be formed. This finding conflicts with the
traditional view that trust is formed later than satisfaction (e.g., Geyskens, et al. 1999).
During the relationship maintenance stage, social satisfaction seems to become latent as
an indicator of credibility trust, according to Wilson’s (1995) proposition. However,
social satisfaction actively influences the formation of credibility trust during relationship
initiation. Chinese food retailers need to feel that the interaction will be fulfilling before
they enter into a relationship with a supplier. When the relationship is built up, social
satisfaction is latent because it has been taken for granted.
The Correlations between Two Types of Satisfaction and Two Types of Trust

We found that, in both the relationship initiation stage and maintenance stage,
benevolence trust and credibility trust are positively correlated, which is consistent with
what is found in the literature (e. g. Ganesan, 1994). However, the correlation between
economic satisfaction and social satisfaction is different between the two stages.
Economic satisfaction and social satisfaction are positively correlated in the relationship
initiation stage, but not during the relationship maintenance stage, a finding which is
inconsistent with the literature (e.g. Geyskens and Steenkamp, 2000). Studies on
economic and social satisfaction do not separate relationships into different stages;
therefore, a possible explanation for the lack of correlation between economic satisfaction
and social satisfaction in the maintenance stage is that social satisfaction becomes latent

in the relationship maintenance stage.

78

Opportunism

Most studies (e.g., Armstrong & Yee, 2001; Morgan & Hunt, 1994; Batt, 2003)
found that one party’s opportunistic behavior reduces its counterpart’s trust. Although
Kwon and Suh (2005) found a non-significant relationship between opportunistic
behavior and trust, they did not provide any explanation for this finding. These previous
studies did not investigate the relationship between opportunism and trust at different
relationship stages, or the relationships between opportunism and the two types of trust
separately.

This study shows that the relationships between opportunism and benevolence
and credibility trust is different during the relationship initiation and maintenance stages.
Opportunism has a significant negative impact on both benevolence trust and credibility
trust during the relationship initiation stage, while opportunism has no significant direct
impact on benevolence or credibility trust during relationship maintenance. This result
challenges the traditional notion that opportunistic behavior reduces trust; certainly, this
traditional notion appears not to be totally true, at least among Chinese food retailers.
During relationship maintenance, a supplier’s opportunistic behavior does not have an
impact on a Chinese food retailer’s level of benevolence or credibility trust. Kwon and
Suh (2005) also failed to uncover any significant relationship between opportunistic
behavior and trust. In their sample of n=l68, the length of business with a particular
partner ranged from one year to 50 years (mean, 8.2 years; standard deviation 6.9 years.)
Therefore, the majority of the sample in Kwon and Suh’s (2005) study already were well

into the long-term relationship maintenance stage (long-term defined as more than 3

79

years). Studies that have identified a negative relationship between opportunism and trust
have not provided clear information on the length of relationships investigated.

During relationship initiation, a retailer is evaluating a supplier. The retailer is in a
position to either establish a relationship with a given supplier or reject that supplier.
Consequently, the retailer is in control. However, later in the relationship, when a retailer
has become committed to the relationship, the retailer is vulnerable to the supplier’s
opportunism. At this stage, when supplier opportunism occurs, the retailer can minimize
the damage by terminating the relationship as soon as possible. Retailers have more
alternatives than suppliers. This statement is confirmed by data showing that opportunism
is significantly and negatively related to long-term orientation during the relationship
maintenance stage, and that opportunism is not directly related to long-term orientation
during the relationship initiation stage. Adding the relationship between opportunism and
long-term orientation in the model for the relationship initiation stage does not
significantly improve the fit of data for the nested model (13780) = .47, p>.05)). There is
no buffer zone through which a retailer’s trust gradually lowers to a threshold, and then
precipitates a decision for the retailer to terminate the relationship. In contrast, Bell et
al.’s (2002) case study reported that a supplier’s trust is resilient to erosion. However,
there is a threshold that, once crossed, leads to a precipitous drop in trust level. The
reason behind the different reactions of retailer and supplier is market power. With more
alternatives, a retailer can more easily exit a relationship. Further research is needed to
confirm this result.

Bell et al.’s (2002) case study on trust deterioration between two high-tech firms

(a buyer and supplier), with a ten-year relationship found that benevolence is more

80

important than credibility trust. Although during relationship initiation, the relationship
between opportunism and benevolence trust is stronger than the relationship between
opportunism and credibility trust, this result is not statistically significant. During
relationship maintenance, neither relationship is significantly different from zero.
Therefore, Bell et al.’s (2002) finding is not supported in our Chinese food retailer
sample.

During both the initiation and maintenance stages of a relationship, opportunism
is negatively related to social satisfaction. This result supports Gassenheimer et al.’s
(1996) findings. In other words, at any time, opportunistic behavior leads to a partner’s
social dissatisfaction.

Long-term Orientation
Benevolence Trust and Credibility Trust

Although researchers have found that trust is the antecedent of long-term
orientation (e.g., Andaleeb, 1996; E. Garbarino & J. L. Johnson, 1999; Geyskens et al.,
1999; Kwon & Suh, 2005; Morgan & Hunt, 1994; Siguaw, Baker, & Simpson, 2003),
Ganesan (1994) is the only researcher who empirically investigated the relationships
between credibility trust and long-term orientation, and between benevolence trust and
long-term orientation. He found that trust is important in developing a long-term
orientation, but only one dimension of trust, credibility, is a significant predictor.
Ganesan did not specifically study the initiation stage or the maintenance stage of the
relationship. Our study supports Ganesan’s findings regarding the relationship between
long—term orientation and benevolence trust and credibility trust, at both the relationship

initiation and maintenance stages for Chinese food retailers. At both stages, benevolence

81

trust is not directly related to long-term orientation, while credibility trust is significantly
and positively related to long-term orientation. This result suggests that retailers are
trained to focus on objective evidence of reliability rather than on the motives of their
channel partners (Ganesan, 1994).

Economic Satisfaction and Social Satisfaction

For many supplier firms, establishing and maintaining a network of satisfied
resellers is crucial to the long-term viability of their channel systems (Dwyer, 1980;
Geyskens et al., 1999). Empirical studies have produced conflicting results on the
relationship between long-term orientation and satisfaction. Yu and Pysarchik (2002)
found that trust is the mediator between economic / non-economic satisfaction and long-
term orientation, in a study of the relationship between cosmetic retailers and their
suppliers. In other words, there is no direct relationship between economic / non-
economic satisfaction and long-term orientation. However, Ganesan (1994) found that
satisfaction with previous outcomes is positively related to a retailer’s long-term
orientation. Neither study investigated the initiation and maintenance stages of
relationships separately.

Our study found a significant and positive relationship between economic
satisfaction and long-term orientation during the relationship initiation stage, but not for
social satisfaction. No such direct relationships regarding satisfaction were identified
during relationship maintenance. In other words, during relationship initiation, economic
satisfaction together with credibility trust and dependence are the antecedents of long-
terrn orientation, while social satisfaction does not influence long-term orientation. As a

relationship matures, credibility trust becomes the only antecedent of long-term

82

orientation. These results, in a way, resolve the conflicting findings from Yu and
Pysarchik‘s (2002) and Ganesan’s (1994) studies. The key is to ascertain the stage of a
relationship before performing a causal analysis on it (Grayson & Ambler, 1999). The
results suggest that satisfaction is not the key dependent variable for established long-
term buyer-seller relationships. It only is important early in the relationship. Credibility
trust should be the key dependent variable for established long-term buyer-seller
relationships. N arayandas and Rangan (2004), in their longitudinal study of three buyer-
seller dyad relationships, found that, during the maintenance stage of a relationship, trust
is the only factor that drives commitment. Our results also indicate that one component of
trust, credibility trust, is active during the relationship maintenance stage, which is
contrary to Wilson’s (1995) proposition that trust should be latent during the relationship
maintenance stage.

The reason for trust being such a necessary ingredient of long-term orientation at
the relationship initiation stage, and the sole determinant factor of long-term orientation
at the relationship maintenance stage, is that it shifts the focus to future conditions. With
trust, both parties believe that, even under contingencies, the pic of rewards will be
divided in an equitable and fair manner.

Guanxi and Guanxi Practice

Guanxi or personal connection has been identified as a necessary condition by
which to do business successfully in China (Chen & Chen, 2004; Paik & Tung, 1999).
Chen (2001) agreed that the establishment of guanxi is fundamental to Chinese business
and has historically been the key to business success. However, a negative side to guanxi

has been noticed by scholars; for example, Warren, Dunfee and Li (2004) found that

83

guanxi may result in negative as well as positive outcomes for focal actors. Therefore, it
is necessary to know when practicing guanxi will be harmful for a retailer-supplier
relationship in China. There has been little research on this issue. Separating
relationships into initiation and maintenance stages, as we have, may help to answer this
question.

At the relationship initiation stage, a supplier’s guanxi practice is not a good
choice, because it is negatively related to its retailer’s social satisfaction and long-term
orientation. This result is in accordance with Stemquist and Chen’s (in Press) in-depth
interview study on Chinese food retailers’ new product acceptance process, whereby
personal relationships between retail buyers and their suppliers are prohibited. However,
during the relationship maintenance stage, a supplier can practice guanxi, because guanxi
practice is positively related to a retailer’s economic satisfaction. This result supports
findings by Luo (1997), Luo and Chen (1997), and Peng and Luo (2000) on the positive
relationship between guanxi and a firm’s performance. This result also is in accordance
with Leung, Lai, Chan and Wong’s (2005) findings that guanxi is positively related to
satisfaction, when they studied stable relationships between senior purchasing managers
of clothing manufacturing firms and their suppliers.

Fukuyama (1995) characterizes Chinese society as a low-trust society, and states
that Chinese people trust only in-group members. During the relationship initiation stage,
retailer-supplier long-term orientation has not yet been formed, and the retailer and the
supplier are out-group members to each other. Giving reciprocal favors or gifts is a strong
norm in Chinese culture (Hwang, 1987). If a buyer receives a favor from a supplier’s

salesperson, the buyer then is morally obliged to repay the favor to the salesperson. As a

84

result, a buyer may be reluctant to accept a salesperson’s favors or gifts because the buyer
does not want to get into an embarrassing situation in which he or she owes the
salesperson a favor. During the relationship maintenance stage, however, after the retailer
and supplier have formed a long-term orientation, they may become in-group members to
each other. Practicing guanxi as a cultural habit will not only be acceptable, but also may
make business transactions smoother. Guanxi must be treated historically as a repertoire
of cultural patterns and resources, which are continuously transformed in their adaptation
to, as well as shaping of, new social institutions and structures (Yang, 2002). Forty-three
percent of the variance in economic satisfaction is explained when guanxi practice is
added as an explanatory factor, during relationship maintenance; whereas only ten
percent of the variance in economic satisfaction is explained when role performance is
the only explanatory factor evaluated during relationship initiation. Therefore, guanxi
practice appears to be very important for established relationships.
Dependence and Dependence Asymmetry
Dependence

There is little research on dependence at different relationship stages. Researchers
who did not segment relationships into stages have conflicting results on dependence. For
example, Ganesan (1994), Yu and Pysarchik (2002), and Lusch and Brown (1996) found
that a retailer’s dependence on its supplier is positively related to its long-term
orientation. Studying manufacturers and their suppliers, Izquierdo and Cillan (2004)
found that, in some cases, a lack of trust may reduce a manufacturers’ intention of
maintaining the relationship, even if their economic dependence is high. By segmenting

relationships into initiation and maintenance stages, we strove to solve this dilemma.

85

During the relationship initiation stage, a Chinese food retailer’s dependence can
influence its long-term orientation; however, during the relationship maintenance stage, a
Chinese food retailer’s dependence does not influence its long-term orientation. In other
words, dependence does not appear to matter once a long-term orientation has been
formed. This result is in accordance with results from studies by Kim (1998) and Kim
and Oh (2002). Kim (1998) investigated the dependence asymmetry’s effect on
satisfaction and trust, while Kim and Oh (2002) investigated the dependence
asymmetry’s effect on commitment, by comparing two countries - the U.S., where short-
term orientation is institutionalized, and Japan, where long-term orientation is
institutionalized. The two studies found that differences in dependence do not matter
when long-term orientation is institutionalized. Our study investigated the relationship
between dependence and long-term orientation in one country, at two different stages;
that is, when long-term orientation is not formed at one stage, and is formed at another
stage.

Our data indicate that relationship interdependence does not influence parties’
long-term orientation later in the relationship, once a long-term orientation already has
been formed. Previous studies have found that a party’s long—term orientation is not
directly related to the other party’s dependence. For example, Lusch and Brown (1996)
found that more dependent wholesale-distributors have a long-term orientation toward
their relationship with their major supplier. A wholesale-distributor’s long-term
orientation was not significantly related to its supplier’s dependence. Ganesan (1994)
stated that asymmetry has a double effect on calculative commitment: the calculative

commitment increases when the firm is more dependent, while the calculative

86

commitment decreases when the firm is less dependent. Our study has found that one
party’s dependence is not related to its own long-term orientation. Van Bruggen, Kacker
and N ieuwlaat (2005) found that total dependence between the distributor and its
organizational customer is positively related to each component of relationship quality
(satisfaction, trust, and commitment). We investigated the relationship between total
dependence (as the sum of both parties’ dependence on each other) and long-term
orientation with economic satisfaction, social satisfaction, benevolence trust, credibility
trust and guanxi as control variables for the relationship initiation stage; and with
economic satisfaction, social satisfaction, benevolence trust, and credibility trust as
control variables for the relationship maintenance stage. The results show that, during
relationship initiation, total dependence is positively related to long-term orientation
(B=.264, p<.1); meanwhile, during relationship maintenance, total dependence is not
related to long-term orientation (B=.054, p>.1).

These results challenge the traditional view that interdependence or total inter-
dependence is an antecedent of a long-term relationship at any stage of buyer-seller
relationships. This view is not true for the relationship maintenance stage. This traditional
view has advocated firms to concentrate mainly on developing long-term relationships
through dependence and locking in channel partners by getting them to use transaction
specific investments (TSI).

Our results also challenge the resource dependence theory, which states that inter-
organizational relationships are structured by means of formal and informal bonds in
order to control dependence (Pfeffer and Salancik, 1978). During the relationship

maintenance stage, if long-term orientation is formed and maintained, dependence does

87

not influence long-term orientation. There is no need to control dependence. Instead, trust
should be the key factor managed during the relationship maintenance stage. The reason
behind trust being a necessary ingredient for long-term orientation at the relationship
initiation stage, and the sole determinant factor of long-term orientation at the
relationship maintenance stage is that it shifts the focus to future conditions. As stated
before, with trust, both parties believe that, even under contingencies, the pie of rewards
will be divided equitably. In contrast, long-term orientation bound by dependence and
TSIs signify a forced collaboration. Both parties constantly search to reduce this
dependence. Gao, Sirgy and Bird (2005) found that dependence has a direct effect on a
buyer’s decision-making uncertainty.
Dependence Asymmetry

There is little research on dependence asymmetry at different relationship stages,
although dependence asymmetry has been studied under conditions of distributors’
differing orientations (e.g. Kim, 1998; Kim and Oh, 2002). As expected, our study found
that during relationship maintenance, dependence asymmetry does not influence the
strength of the relationship between a supplier’s role performance and a retailer’s
economic or social satisfaction; during the relationship initiation stage, the dependence
asymmetry does influence the strength of the relationship between the supplier’s role
performance and social satisfaction, the relationship being stronger among weaker
retailers. The results have confirmed the proposition that dependence difference affects
the retailer-supplier relationship during the relationship initiation stage, but does not
affect the retailer—supplier relationships during the relationship maintenance stage.

Weaker retailers are more easily satisfied with a supplier’s good role performance, which

88

is in accordance with Kumar et al.’s (1995) and Yilmaz, Sezen and Kabaday’s (2004)
findings. However, although the relationship of role performance and economic
satisfaction appears larger among powerful retailers than weaker retailers, the difference
is not statistically significant. The possible explanation for this lack of difference is
inadequate sample size.

Our results for dependence asymmetry and dependence are in accordance with
findings by Hallikas, Wirolainen and Tuominen (2002). Hallikas, et al. (2002) found that
dependency and asymmetry are two major uncertainty and transaction cost drivers. Long-

tenn relationships can minimize these transaction costs and risks.

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CHAPTER 6

CONCLUSION

This study investigated, from a buyer’s perspective, how buyer-seller long-term

relationships are initiated and maintained in the Chinese food retailer and supplier

distribution channel. The study fills in three gaps in the distribution channel relationship

research: the lack of studies on the process of relationship evolution; the lack of research

on long-term orientation in foreign marketing channels (e.g., China); and the lack of

research from a distributor’s perspective. The study found significant differences in the

relationships among the constructs at the relationship initiation and maintenance stages.

Only eight of the twenty-one relationships are the same for the two relationship

stages (see all the relationships with bold arrows in Figure 4 and 5).

l)

2)
3)
4)
5)
6)

7)

Role performance is positively related to economic satisfaction and
social satisfaction.

Role performance is positively related to credibility trust.
Benevolence trust and credibility trust are positively correlated.
Credibility trust is positively related to long-term orientation.
Benevolence trust is not directly related to long-term orientation.
Opportunism is negatively related to social satisfaction.

Social satisfaction is not directly related to long-term orientation.

At the relationship initiation stage, role performance increases a retailer’s

economic satisfaction, social satisfaction, benevolence trust and credibility trust.

Economic satisfaction, credibility trust and dependence directly impact the formation of a

retailer’s long-term orientation. Social satisfaction can indirectly influence long-term

92

orientation formation through credibility trust. Practicing guanxi has a negative effect on
both social satisfaction and long-term orientation. Opportunistic behavior has a negative
impact on benevolence trust, credibility trust and social satisfaction. The relationship
between role performance and social satisfaction is stronger for weaker retailers than for
powerful retailers.

In addition, at the relationship initiation stage, economic satisfaction is not
directly related to benevolence trust. Social satisfaction is not directly related to long-
term orientation. Although the relationships between opportunism and benevolence trust
and credibility trust are significant and negative, the coefficients of the two relationships
are not significantly different from each other. In other words, the relationship between
opportunism and benevolence is not stronger than the relationship between opportunism
and credibility trust. The relationship between role performance and economic
satisfaction is not found to be stronger for powerful retailers than for weaker retailers.

At the relationship maintenance stage, role performance increases economic
satisfaction, social satisfaction and credibility trust. Guanxi has a positive impact on
economic satisfaction. Economic satisfaction fosters benevolence trust. Credibility trust
leads to long-term orientation. Opportunistic behavior is negatively related to social
satisfaction and long-term orientation.

In addition, at the relationship maintenance stage, dependence asymmetry does
not influence the relationship between role performance and economic satisfaction or
social satisfaction. Social satisfaction is not directly related to credibility trust. Economic

satisfaction and social satisfaction are not directly and significantly related. Economic

93

satisfaction, social satisfaction and dependence are not directly related to long-term
orientation. Opportunism reduces neither credibility trust nor benevolence trust.
Managerial Implications

From a managerial perspective, it is important for suppliers who want to build or
maintain long-term relationships with Chinese food retailers to have different relationship
strategies at different relationship stages. First, at the relationship initiation stage, a
supplier can change the Chinese food retailers’ time orientation from a short-term to
long-term orientation by means of credibility trust-enhancing behaviors, making retailers
economically satisfied and making them feel dependent on the supplier. To enhance the
retailers’ credibility trust of the supplier, a supplier should focus on performing its role
well (provide promised benefits reliably and effectively), and make the retailers feel that
the business interaction experience is fulfilling and gratifying. This approach is important
at this stage, especially for weaker retailers. An impressive role performance also will
make retailers economically satisfied. In addition, a good role performance will impress
upon the retailers that they can economically depend on the supplier. At this stage, a
supplier should avoid opportunistic behavior and guanxi practice. Opportunistic behavior
will directly lower the level of trust and social satisfaction. Guanxi practice may directly
lead to termination of the relationship.

Second, at the relationship maintenance stage, a supplier can maintain a long-term
relationship or affect Chinese food retailers’ long-term orientation only through
credibility trust-enhancing behaviors. To enhance the retailers’ credibility trust of the
supplier, a supplier should focus on performing its role well (provide promised benefits

reliably and effectively). As Chinese food retailers’ economic satisfaction can influence

94

their long-term orientation through the mediation of benevolence trust and credibility
trust, it is important to make retailers economically satisfied. A suppliers’ good role
performance can bring economic satisfaction to the retailers. Guanxi practice, at this
stage, also can make the retailers feel economically satisfied. Therefore, it is necessary to
learn to practice guanxi to maintain a long-term business relationship in China. At this
stage, the supplier can save time and energy from the management of dependence and
social satisfaction, which are latent at this stage.

Limitations

The results and implications of this study are somewhat constrained by the
research method employed. Although the testing of the models yielded results that are
consistent with the hypotheses, the cross-sectional design limits the ability to rule out
alternative causal inferences. For example, the models are predicated on the assumption
that credibility trust affects long-term orientation. Although the results support this
general hypothesis, it also is conceivable that a reverse sequence of events can occur.
Typically, most studies have conceptualized trust as a determinant rather than a
consequence of relationship quality (e.g., Anderson and Narus, 1990; Anderson and
Weitz, 1989).

Furthermore, this study examines only one dimension of long-term relationships,
that is, long-term orientation. Other dimensions, such as relational norms (Dwyer, et al.,
1987; Kaufmann & Stern, 1988; Macneil, 1980), are not included. The social satisfaction
scale needs to be improved to enhance reliability. The low reliability for this scale is

likely the result of reverse scored items. In future studies, it will be important to use only

95

positively worded statements. Therefore, results related to social satisfaction should be
interpreted with caution.
Directions for Future Research

The initiation stage includes several sub-stages (Figure 1). Based on the findings
of differences of the two stages, a similar study could be conducted to investigate the
relationships at those sub-stages. Future studies could be longitudinal, covering the
relationship stages of the same retailers. Because the buyer-seller relationship is based on
personal business relationships between key persons, future research could study the
relationship among constructs after an incident occurs, such as a change in managers.
Future research could enhance the social satisfaction scale. Future studies could focus on
how suppliers can restore their relationships with retailers after opportunistic behavior
occurs. Finally, research could be conducted on the relationship between trust as a
relational governance and contract as the more formal governance, when trust could be a

substitute for contract.

96

NOTES

1. Legitimate power is based on one channel member’s perception of its partner’s
legitimate right to influence its operation and the extent to which the member is obliged
to accept this influence (Kasulis & Speckman, 1980; Kasulis, Speckman & Bagozzi,
1979). Power source is determined from the magnitude of its source (Simon, 1953).
Basically there are six types of power sources: expert power source, information power
source, legitimate power source, referent power source, reward power source, and

coercive power source.

97

 

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