Industrial suppliers provide buyers with inputs(raw materials and parts) with which the buyers then manufacture and sell finished goods. The power of a supplier over its buyer is defined as the supplier’s ability to influence the buyer’s behavior for the supplier’s own sake. For example, Intel offers PC assemblers to sell ultrabooks by subsidizing their marketing costs, which helps increase demand for Intel’s CPUs. As such, a powerful supplier may influence its buyers to gain access to important market information, and to coordinate critical decision-makings in production planning and new product development between the two firms. Both suppliers and buyers are benefited from such supply chain integration activities, but buyers are rightfully cautious about their excessive dependence upon the powerful supplier, since they may be exposed to the supplier’s opportunistic behaviors and may find it difficult to switch to other suppliers. The more dependent upon the powerful supplier, the less new information and learning opportunities the buyer will have. Therefore, buyers tend to reduce their dependence by seeking alternate sources of supply. In this setting, the question of importance is how industrial suppliers could build the buyer’s relational commitment and motivate them to engage in supplier integration.
The purpose of this study is to investigate the effects of the sources of the supplier power on the buyer’s relational commitment and integration activities with the supplier. Building upon prior studies on the power in marketing channels, we consider non-coercive(expert, referent, and reward) and coercive sources of the power of industrial suppliers, as shown in Figure 1. This study hypothesizes that the supplier’s noncoercive power induce the buyer’s voluntary acceptance and then increase relational satisfaction, which leads to greater buyer’s relational commitment to the power holder(supplier). In this process, the buyer’s perceived procedural and distributive justices could reinforce its commitment to the supplier. Moreover, we propose that buyers will be motivated intrinsically and extrinsically to engage in supplier integration activities because of the supplier’s superior knowledge, values, and economic rewards. On the contrary, if the supplier exercises coercive power, the buyer will begrudgingly comply with the buyer in order to avoid punishment or undesirable outcomes. Although the buyer would accept the supplier’s influence, it would not be committed to the supplier. Nor motivated the buyer is to engage in supplier integration activities.
To test the proposed hypotheses, we randomly sampled manufacturers in Korea, China, Hong Kong, Taiwan, and the U.S. and collected firm-level data using a key informant approach. Research coordinators of the five regions developed the standard questionnaire in English, which each country coordinator translated to its own language version and back-translated to English again to ensure the reliability of the survey instrument. Target informants are CEO, head of business division, supply chain executives, and so on. Initially all sampled firms were asked for their participation, and follow-up phone calls were made to encourage their participation. As a result, a total of 1,229 firms participated in the study, resulting in 11.5% of the response rate. Covariance structural equation modeling is employed to test the hypotheses. <Table 1> presents the results of the structural model analysis.
In this study, we were able to confirm that industrial suppliers’ expert and reward power positively influenced the buyer’s relational commitment while their coercive power significantly reduced it. In addition, we also found that the supplier’s expert power both directly and indirectly increased the buyer’s supplier integration activities, whereas the referent power only directly affected it. Both reward and coercive powers influenced the buyer’s supplier integration indirectly through affecting the buyer’s relationship commitment, yet, in opposite directions. Reward power motivated the buyer to engage in more supplier integration, but coercive power deterred the buyer to do so. Indirect effects of the supplier’s power were evaluated using the bias-corrected bootstrapping methodology, as reported in Table 2.
The contribution of the study is three-fold. First, we investigated the effects of supplier power in industrial supplier-manufacturer relationships that have not been studied before. As more and more firms outsource their non-core operations to outside suppliers, this study addressed a timely managerial issue. Second, we also confirmed the importance of non-coercive power in developing the buyer’s relationship commitment and increasing cooperative integration activities with the power holder(in this case, industrial suppliers). In particular, expert and referent power turned out to be most effective in building rapport with the buyer and inducing its strategic cooperation. Consistent with prior research, this study also affirmed the negative effects of coercive power in a supplier-manufacturer relationship.
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