Power, Governance, and Value in Collaboration: Differences between Buyer and Supplier Perspectives

• Author: Renata P. Brito,Priscila L. S. Miguel
• Published date: 01 April 2017
• Date: 01 April 2017
• DOI: http://doi.org/10.1111/jscm.12134

POWER, GOVERNANCE, AND VALUE IN

COLLABORATION: DIFFERENCES BETWEEN BUYER AND

SUPPLIER PERSPECTIVES

RENATA P. BRITO X

University of St. Gallen

PRISCILA L. S. MIGUEL

EAESP FGV

Early research on buyer–supplier relationships was based on two corner-

stones: relational governance mechanisms and superior value creation for

the whole supply chain. Relational governance mechanisms, based on

trust and informal safeguards, can lead to higher value creation, while

lack of trust and opportunism can be controlled by contractual gover-

nance mechanisms. To date, however, few studies have investigated the

role of power asymmetry in collaboration and how the total value is dis-

tributed between buyer and supplier. The amount each partner appropri-

ates depends on their relative power in the relationship, which has fu rther

implications in governance and relationship continuation, yet that has

not been thoroughly explored in the literature. To fill this gap, this study

investigates the influence of power asymmetry on governance and value

appropriation in collaborative relationships, from both the buyers’and

suppliers’perspectives. This article contributes to the buyer–supplier liter-

ature by exploring the gains of both the stronger and weaker partners in

the dyad. Based on in-depth case studies with buyers and suppliers of the

personal care and cosmetics (PC&C), and food and beverage (F&B) indus-

tries in Brazil, we found insights concerning the influence of power asym-

metry and interdependence on governance mechanisms, as well as the

complementarity of value appropriation inside and outside the dyad. We

also propose a framework to represent the interplay between perceived

justice and power asymmetry in long-term relationships.

Keywords: power asymmetry; relational governance; contractual governance; case

studies; qualitative data analysis

INTRODUCTION

The literature regarding buyer–supplier relationships

(BSRs) emphasizes the importance of collaboration as

a source of resource development and value creation

for firms (Cooper, Lambert & Pagh, 1997; Mentzer

et al., 2001; Wagner, Eggert & Lindemann, 2010).

Collaboration between a buyer and supplier involves

joint planning and investments in relationship-specific

assets, repeated transactions, and a complex gover-

nance structure to promote exchange (Cheung, Myers

& Mentzer, 2011; Dyer, 1997; Nyaga, Lynch, Marshall

& Ambrose, 2013; Terpend, Tyler, Krause & Handfield,

2008). For this reason, in the literature, collaboration

is often associated with relational governance, which

is based on trust, transparency, and shared knowledge

between firms (Cao & Lumineau, 2015; Whipple,

Lynch & Nyaga, 2010).

However, there are still some important unexplored

issues regarding collaborative BSR. The first regards

the acknowledgment that BSRs are characterized by

power asymmetry (Cani€

els & Gelderman, 2007; Hing-

ley, 2005; Ireland & Webb, 2007; Maloni & Benton,

2000; McCarter & Northcraft, 2007). Power asymme-

try has implications in the distribution of value cre-

ated, and, therefore, it is not plausible to expect that

collaborative relationships provide balanced gains to

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Journal of Supply Chain Management

2017, 53(2), 61–87

©2017 Wiley Periodicals, Inc.

all participants. Yet, to date, few studies have investi-

gated how the total value created is appropriated by

firms in collaborative BSRs (Adegbesan & Higgins,

2010; Crook & Combs, 2007).

The second point concerns the existence of conflict-

ing interests in BSRs (Kim & Choi, 2015), which, in

turn, influences the governance approach of each part-

ner in the dyad. Recent research has provided evi-

dence that both contractual and relational governance

mechanisms are applied in collaboration as comple-

mentary mechanisms to maximize value creation (Cao

& Lumineau, 2015; Liu, Luo & Liu, 2009; Villena,

Revilla & Choi, 2011); however, that does not neces-

sarily benefit both members of the dyad.

One of the reasons those issues have not yet been

addressed is because the majority of empirical

research on BSRs focuses on one perspective in the

dyad, and often, on the buyer’s side (Spina, Caniato,

Luzzini & Ronchi, 2013). Few have investigated both

sides of the relationship (Cheung et al., 2011; Nyaga,

Whipple & Lynch, 2010; Whipple, Wiedmer & Boyer,

2015). The supply chain literature is grounded in the

dominant view of procurement and supply manage-

ment, where buyers are responsible for coordinating

and developing their suppliers (Cox, 2001; Terpend

et al., 2008), overlooking the implications of power

asymmetry. Thus, if governance and imbalanced value

distribution hampers the realization of collaborative

efforts (McCarter & Northcraft, 2007; Zhang, Henke &

Griffith, 2009), there is a need to investigate compo-

nents of continuity in collaborative relationships.

Our study aims to fill these gaps by analyzing both

buyers’ and suppliers’ perspectives on governance,

value creation and appropriation in a collaborative

relationship. Here, we address three research ques-

tions: (1) In a context of power asymmetry, what are

the drivers for different governance mechanisms? (2)

How do buyers and suppliers appropriate value? and

(3) How do the governance mechanisms and value

appropriation affect the perceived justice and the con-

tinuity of the relationship? As the use of power and

governance mechanisms affects the relationship expe-

rience, and value distribution affects the perception of

fairness, it is important to investigate the interplay

among those concepts.

To accomplish these goals, we conducted a qualita-

tive analysis of 24 case studies in two industry sectors,

personal care and cosmetics (PC&C) and food and

beverage (F&B), in the Brazilian context.

There are three main contributions of our research.

First, our findings suggest that the preference for dis-

tinct governance mechanisms in power asymmetry is

an attempt to manage different interdependence

objectives. Second, our results demonstrate the com-

plementary role of value appropriation inside and

outside the dyad in a power asymmetry context.

Finally, we analyze the interplay between justice and

perceived fairness and unfairness in the relationship

continuity.

THEORETICAL BACKGROUND

Buyer–Supplier Relationships

BSRs are a unique form of alliance. Such alliances are

complex and have three primary characteristics relative

to our study: vertical relationships, power asymmetry,

and connections with direct (first tier) or indirect

(higher tier) partners (McCarter & Northcraft, 2007). In

BSRs, companies may adopt different forms of gover-

nance mechanisms that range between two extremes:

contractual and relational (Cao & Lumineau, 2015; Dyer

& Singh, 1998; Williamson, 1979, 2008).

Contractual governance is based on formal contracts

(Poppo & Zenger, 2002), unilateral investments in

assets (Liu et al., 2009), and short-term gains (Kim,

Choi & Skilton, 2015). Contracts have two functions:

to control opportunism, which stems from misaligned

incentives, and to coordinate the expectations and

behavior of the partners (Malhotra & Lumineau, 2011).

Relational governance, on the other hand, implies

long-term agreements based on personal relationships

and social norms, such as trust and mutual commit-

ment (Cheung et al., 2011; Dyer & Singh, 1998; Poppo

& Zenger, 2002). Typically, there is an expectation of

relationship continuity, greater knowledge sharing,

development of asset specificity, and complementarity

between partners (Dyer & Singh, 1998; Mentzer et al.,

2001; Poppo & Zenger, 2002). Both parties dedicate

effort and joint resources to common projects to create

more value (Cooper et al., 1997; Mentzer et al., 2001;

Ulaga & Eggert, 2006).

Between these two extremes, there are the interplay

and the complementarity of contractual–relational gov-

ernance (Cao & Lumineau, 2015; Poppo & Zenger,

2002). In fact, both governance mechanisms can be

adopted to create value and to improve the satisfaction

and performance of the relationship (Cao & Lumineau,

2015; Liu et al., 2009).

In a context of dependence asymmetry, the collabo-

rative BSR, as a long-term alliance, can reduce envi-

ronmental uncertainty (Crook & Combs, 2007;

Gulati & Gargiulo, 1999), but, in this case, it

requires more formal control mechanisms (Mahapa-

tra, Narasimhan & Barbieri, 2010). Therefore, to

determine the appropriate governance mechanisms in

long-term relationships, organizations need to peri-

odically assess their interdependence and power posi-

tion relative to their suppliers and customers (Dyer

& Singh, 1998; Lazzarini, Claro & Mesquita, 2008;

Poppo & Zenger, 2002). Thus, the concepts of inter-

dependence and power are intrinsically related, as

explained below.

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