Perceived supplier opportunism in outsourcing relationships in emerging economies

• Author: Keith Skowronski,W. C. Benton,James A. Hill
• DOI: http://doi.org/10.1002/joom.1123
• Published date: 01 October 2020
• Date: 01 October 2020

RESEARCH ARTICLE

Perceived supplier opportunism in outsourcing

relationships in emerging economies

Keith Skowronski

1

| W. C. Benton Jr.

2

| James A. Hill

2

1

Department of Management Science,

Darla Moore School of Business,

University of South Carolina, Columbia,

South Carolina

2

Department of Management Sciences,

Fisher College of Business, The Ohio State

University, Columbus, Ohio

Correspondence

W. C. Benton Jr., Department of

Management Sciences, Fisher College of

Business, The Ohio State University, 2100

Neil Avenue, Columbus, OH 43210.

Email: benton.1@osu.edu

Handling Editors: Subodha Kumar,

Sriram Narayanan, Fabrizio Salvador

Abstract

While opportunism has been a focus of transaction cost economics, perceived

opportunism, where one party is perceived to be acting opportunistically when

there is no opportunistic intent, can also lead to increased transaction costs in

an exchange. In this study, consistent with forms of opportunism observed in

our context of manufacturing outsourcing, we examine two different forms of

perceived opportunism—perceived poaching and shirking. As narratives of the

hidden costs of outsourcing discuss concerns of suppliers in emerging econo-

mies engaging in poaching and shirking, we examine if the level of economic

development where a supplier operates affects perceptions of supplier

poaching and shirking and also examine if the supplier's competitive priorities

moderate those perceptions. To empirically test these relationships, we com-

bine archival data of location characteristics with a dyadic primary dataset that

captures perceived supplier opportunism, self-reported supplier opportunism,

and other relationship characteristics. Our findings illustrate that perceived

opportunism and opportunism are distinct constructs and that more observ-

able forms of opportunism (i.e., shirking) affect perceived opportunism more

than less observable forms of opportunism (i.e., poaching). We also find that,

in existing relationships, manufacturers in advanced economies perceive

poaching to be more strongly related to the level of economic development

where a supplier operates than shirking. Finally, we find that while a cost

focus can mitigate perceptions of poaching, an innovation focus exacerbates

them. Overall, our study illustrates the challenges that innovation-focused sup-

pliers in emerging economies face in regards to competing with suppliers in

advanced economies.

KEYWORDS

cost priority, emerging economies, innovation priority, outsourcing, perceived opportunism,

sensemaking

1|INTRODUCTION

The popular and academic press is rife with narratives of

manufacturers encountering unforeseen problems when

outsourcing to suppliers in emerging economies,

commonly referred to as offshore suppliers

(e.g., Burton, 2013; Riley & Vance, 2012; Sirkin, Zinser, &

Hohner, 2011; Stewart, 2013; Webb, 2016). Many of these

anecdotes detail situations where the unforeseen prob-

lems were encountered because of nefarious activities by

Received: 26 May 2018 Revised: 5 June 2020 Accepted: 28 August 2020

DOI: 10.1002/joom.1123

J Oper Manag. 2020;66:989–1023. wileyonlinelibrary.com/journal/joom © 2020 Association for Supply Chain Management, Inc. 989

suppliers in emerging economies. For example,

Skowronski and Benton (2018) discuss a manufacturer

that outsourced proprietary designs to a supplier in an

emerging economy and later found those designs for sale

in that supplier's catalog. Gray, Esenduran,

Rungtusanatham, and Skowronski (2017) highlight

another issue when discussing a manufacturer that

incurred significant warranty costs when a supplier in an

emerging economy substituted an unapproved compo-

nent into their assemblies. Similar situations are

highlighted by Midler (2009), who observed suppliers in

emerging economies stealing the buyer's intellectual

property (IP) as well as intentionally providing lower

than agreed upon quality of products. Others have ech-

oed similar concerns about the increased IP risk

(e.g., Aeppel, 2009; Riley & Vance, 2012) and quality risk

(e.g., Sirkin, Rose, & Zinser, 2012; Tate, Ellram,

Schoenherr, & Petersen, 2014) when engaging with sup-

pliers in emerging economies, which are commonly

referred to as hidden costs of outsourcing (Burton, 2013).

Broadly, these hidden costs of outsourcing are considered

two forms of supplier opportunism: poaching and

shirking (Aron, Clemons, & Reddi, 2005; Handley &

Benton, 2012).

For suppliers in emerging economies, the prevalence

of these anecdotes can create an obstacle for maintaining

relationships with buyers in advanced economies as

buyers may perceive well-intentioned suppliers in emerg-

ing economies to be more opportunistic than suppliers in

advanced economies. This makes understanding how to

mitigate perceived poaching and perceived shirking

(i.e., forms of perceived opportunism) of critical impor-

tance because these issues have been encountered enough

that firms are terminating outsourcing arrangements with

suppliers in emerging economies (i.e., reshoring)

(Brandon-Jones, Dutordoir, Frota Neto, & Squire, 2017;

Gray, Skowronski, Esenduran, & Rungtusanatham, 2013).

Understanding the factors that influence perceived

poaching and perceived shirking is also important for

buyers because these perceptions can affect outsourcing

decisions. Specifically, as many manufacturers in

advanced economies are reevaluating their global out-

sourcing relationships due to the hidden costs of out-

sourcing (e.g., Collins, 2010; Hutzel & Lippert, 2012;

Knott, 2012), understanding when their perceptions of

opportunism are biased (i.e., not due to actual opportun-

ism) can save the buyer unnecessary transaction costs,

such as unnecessarilyswitching suppliers.

While opportunism has been a focus of the TCE liter-

ature (David & Han, 2004; Grover & Malhotra, 2003;

Holcomb & Hitt, 2007; Williamson, 1985), recent TCE

research (e.g., Weber & Mayer, 2014) has recognized the

importance of perceived opportunism (i.e., a party is

perceived to be acting opportunistically when that is not

the actual intent). Understanding factors that influence

perceived opportunism is also an important aspect of

managing buyer–supplier relationships because perceived

opportunism can lead to an increase in transaction costs

beyond the costs of actual opportunism (Weber &

Mayer, 2014). For example, a buyer would likely react

differently to a problem that the buyer attributed to a

simple misunderstanding between the parties versus a

problem that the buyer attributed to the supplier trying

to take advantage of the buyer, even if that was not the

supplier's intent (i.e., the supplier is perceived to be

acting opportunistically when they are not). The latter

scenario would likely undermine the establishment of

a trust-based relationship, resulting in increased trans-

action costs due to haggling or even relationship ter-

mination (Sako & Helper, 1998; Weber &

Mayer, 2014). Thus, understanding factors that affect

perceived opportunism is practically and theoretically

important.

Consistent with our context of manufacturing out-

sourcing, we examine two different forms of perceived

opportunism—perceived poaching and shirking.

Poaching is the unauthorized use of the buyer's IP, and

shirking is defined as intentional underperformance of

agreed-upon duties, such as intentionally providing lower

than agreed-upon quality (Aron et al., 2005; Handley &

Benton, 2012). Thus, the goal of this research is to exam-

ine perceived poaching and shirking, or in other words,

when a buyer perceives that a supplier is engaging in

either poaching or shirking when the supplier is not. To

examine perceived opportunism requires disentangling

situations where perceptions of opportunism are accurate

(i.e., perceived opportunism is related to opportunism).

To accomplish this, we first examine how opportunism

affects perceived opportunism for both perceived

poaching and shirking. Better understanding these rela-

tionships is both practically and theoretically relevant as

it can illustrate when (a) buyers’perceptions of opportun-

ism are or are not informed by opportunistic intent, and

(b) researchers need to account for opportunism when

studying perceived opportunism. Additionally, including

measures of opportunism enables the examination of fac-

tors that influence perceived opportunism outside of

opportunism (i.e., when perceived opportunism is not

related to actual opportunism). Since factors that influ-

ence one form of opportunism may not have similar

effects on other forms (Aron et al., 2005; Wathne &

Heide, 2000), factors that affect perceived opportunism

may differ across forms. Therefore, we examine these two

forms of perceived opportunism separately to understand

if factors that influence perceived opportunism also differ

across forms.

990 SKOWRONSKI ET AL.

As Weber and Mayer (2014) discuss, while opportun-

ism is influenced by exchange hazards, such as asset

specificity, perceived opportunism is influenced by attri-

butes of the parties in the transaction. Drawing on the

sensemaking literature (e.g., Maitlis &

Christianson, 2014; Weick, 1995; Weick, Sutcliffe, &

Obstfeld, 2005) and focusing on cognitive frames, Weber

and Mayer (2014) expand the TCE concept of uncertainty

to include interpretive uncertainty. Sensemaking involves

people using their frame of reference (i.e., cognitive

frame) to create meaning. Cognitive frames are

influenced by attributes of the parties engaging in sen-

semaking, such as those created by different institutional

environments (i.e., emerging versus advanced econo-

mies). Individuals with diverse cognitive frames are likely

to interpret events differently (i.e., interpretive uncer-

tainty). Thus, situations where one party is perceived as

being opportunistic when “there was no actual opportu-

nistic intention”(Weber & Mayer, 2014, p. 347) should

increase when there are greater differences between the

cognitive frames of the parties in an exchange. Therefore,

we draw from the literature on perceived opportunism to

examine if U.S. buyers' perceptions of supplier opportun-

ism differ between suppliers from advanced and emerg-

ing economies.

A firm's competitive strategy also affects how a firm is

perceived (Porac, Thomas, Wilson, Paton, &

Kanfer, 1995; Reger & Huff, 1993). Thus, to provide prac-

tical managerial implications to suppliers operating in

emerging economies, we also examine whether the sup-

plier's competitive strategy can moderate perceptions of

opportunism. We examine two salient aspects of the sup-

plier's competitive strategy: (a) the priority placed on cost

and (b) the priority placed on innovation. We examine

these two competing priorities because, while suppliers

in emerging economies were initially focused on low-cost

manufacturing (Hayes, Pisano, Upton, &

Wheelwright, 2005; Sirkin et al., 2012), many firms in

emerging economies are now attempting to turn their

focus to innovation (Minter, 2012; USITC, 2010). Thus,

the findings in this study illustrate some of the implica-

tions of those trade-offs.

To examine perceived poaching and shirking in

manufacturing outsourcing relationships, we investigate

the effects of opportunism and three supplier attributes—

the level of economic development where the supplier is

operating (i.e., the supplier's operating environment) and

the supplier's emphasis on cost and innovation (i.e., the

supplier's strategy)—and how these effects differ across

forms of perceived opportunism (Figure 1). We combine

archival data of location characteristics with a dyadic pri-

mary dataset that captures perceived supplier opportun-

ism, self-reported supplier opportunism, and other

relationship and transaction characteristics to address the

following research questions:

•What are the effects of opportunism on perceived

opportunism?

•Beyond the effects of opportunism, what are the effects

of a supplier's operating location and competitive pri-

orities on perceived opportunism?

2|RELATED LITERATURE

2.1 |Studies on opportunism and

perceived opportunism

As shown in Table 1, there is a substantial body of litera-

ture empirically examining the antecedents to opportun-

ism in exchange relationships. This research has focused

on three main categories of antecedents. First, exchange

hazards, such as idiosyncratic investments, have been

shown to exacerbate conditions for opportunism

(e.g., Anderson, 1988; Liu et al., 2009). Second, gover-

nance mechanisms, such as contracts or relational gover-

nance, have been shown to control opportunism

(e.g., Luo, 2007; Zhou & Xu, 2012). Third, aspects of the

institutional environment, such as culture, have been

shown to both be directly related to opportunism

(e.g., Luo, 2007; Wuyts & Geyskens, 2005) and alter the

relationships that the other two types of antecedents have

with opportunism (e.g., Handley & Angst, 2015;

Skowronski & Benton, 2018). As illustrated in Table 1, in

this literature, opportunism has been measured using

both self-reports of opportunism, such as a party

reporting on their own or their firm's opportunistic

behavior (e.g., Dong et al., 2015; Ta ngpong et al., 2010)

and other-reports of opportuni sm (e.g., Anderson, 1988),

such as opportunism observed or perce ived by the other

party. Regardless of how oppor tunism was measured,

the theoretical focus of these stu dies is to determine the

antecedents of opportunis tic acts. Conversely, the litera-

ture empirically examining perc eived opportunism is

theoretically distinct. The intent of that literature is to

determine what causes one par ty to perceive that the

other is acting opportunisti cally, a concept more akin to

trust (Weber & Mayer, 2014). The refore, while our study

is theoretically distinct f rom the existing literature on

opportunism, our dependent variables are empirically

similar to the studies that meas ured opportunism as

reported by a party not engaging i n the act. To account

for this, we empirically contro l for three main categories

of antecedents of opportunism to see i f, consistent with

the theoretical literature on perceived opportunism

SKOWRONSKI ET AL.991