INTERFIRM ABSORPTIVE CAPACITY
The influence of governance mechanisms and relation-specific investments
on interfirm potential and realized absorptive capacity
ByLars Harmsen
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INTERFIRM ABSORPTIVE CAPACITY
The influence of governance mechanisms and relation-specific investments on interfirm potential and realized absorptive capacity
Double Degree Master Thesis
Master Marketing Management and Master Strategic Innovation Management
Lars Harmsen
University of Groningen Faculty of Economics and BusinessJune 18, 2015
First supervisor: dr. J. (Hans) Berger
Second supervisor: dr. J. D. (Hans) van der Bij
Paterswoldseweg 271-2 9728 AE Groningen
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Abstract
Knowledge has become a dominant source of competitive advantage, and outside sources of knowledge are often critical to the innovation process. The present study therefore examines the influence of governance mechanisms and relation-specific investments on a firm’s absorptive capacity. The exchange of knowledge within interfirm relationships is facilitated and controlled with governance mechanisms and relation-specific investments, and although these constructs have been the subject of many previous studies, this study examines them from a resource-based view rather than from a transaction cost economics view. By doing so, the study determines the effects of governance mechanisms and relation-specific investments in a knowledge sharing and value creating context rather than in a risk- and dependance-avoiding context. The study analyses a database of 166 dyadic interfirm buyer-supplier relationships and uses PLS-SEM analysis to assess the conceptual model. The results indicate that relational governance and relation-specific investments have a positive effect on the development of a firm’s absorptive capacity, whereas contractual governance seems to be irrelevant. In addition, the buyer uses contractual and relational governance as substitutes rather than as complements, and the study finds evidence for a strong positive effect of potential absorptive capacity on realized absorptive capacity. Finally, relationship duration and importance have been found to be noninfluential in the development of absorptive capacity.
Keywords: absorptive capacity, contractual governance, relational governance,
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INDEX
1. INTRODUCTION ... 5
2. ABSORPTIVE CAPACITY, GOVERNANCE MECHANISMS, AND INTERFIRM RELATIONSHIPS ... 8
2.1 ABSORPTIVE CAPACITY ... 8
2.1.1 Dimensions of ACAP ... 10
2.1.2 Potential Absorptive Capacity ... 10
2.1.3 Realized Absorptive Capacity ... 11
2.1.4 Antecedents to ACAP and its Dimensions ... 11
2.2 GOVERNANCE MECHANISMS ... 12
2.3 INTERFIRM RELATIONSHIPS ... 13
2.4 CONCEPTUAL MODEL ... 14
3. DEPICTION OF THE VARIABLES AND THEIR LINKS ... 15
3.1 CONTRACTUAL GOVERNANCE ... 15
3.2 RELATIONAL GOVERNANCE ... 17
3.3 THE INTERPLAY BETWEEN CONTRACTUAL AND RELATIONAL GOVERNANCE ... 19
3.4 RELATION-SPECIFIC INVESTMENTS ... 20
3.5 INTERDEPENDENCE BETWEEN PACAP AND RACAP ... 22
3.6 TURBULENCE ... 23
4. RESEARCH METHODOLOGY ... 25
4.1 DATA COLLECTION METHODS ... 25
4.1.1 Descriptives ... 25
4.2 STATISTICAL PROCEDURE AND MEASURES ... 26
4.2.1 Measures ... 27
4.2.2 Control Variables ... 28
5. RESULTS ... 30
5.1 DATA RELIABILITY AND VALIDITY ... 30
5.2 HYPOTHESES TESTING ... 36
5.2.1 ‘Buyer-only’ Database ... 37
5.2.2 ‘Supplier-only’ Database ... 38
5.2.3 Conclusion Data Analysis ... 39
6. DISCUSSION, IMPLICATIONS, LIMITATIONS, AND CONCLUSION ... 41
6.1 DISCUSSION ... 41
6.2 MANAGERIAL IMPLICATIONS ... 44
6.3 LIMITATIONS AND FUTURE RESEARCH ... 44
6.4 CONCLUSION ... 45
REFERENCES ... 47
APPENDICES ... 55
APPENDIX A:QUESTIONNAIRE ... 55
APPENDIX B: LINEAR REGRESSION CURVE ESTIMATION GRAPHS ... 58
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1. Introduction
The instability of the organizational climate has established focused attention on knowledge as a dominant source of competitive advantage (Jansen et al., 2005). Knowledge-based resources have been found to be inherently difficult to imitate because they are often tacit and hard to codify, thus facilitating sustainable differentiation (McEvily and Chakravarthy, 2002; Wiklund and Shepherd, 2003). Knowledge-based resources also play an important role in the firm’s ability to be entrepreneurial (Squire et al., 2009), and improve performance (McGrath et al, 1996).
Outside sources of knowledge are often critical to the innovation process (Cohen and Levinthal, 1990). The ability to exploit external knowledge is thus a critical component of innovative capabilities. The most frequently used definition for the capability to exploit external knowledge comes from Cohen and Levinthal (1990). They describe the capability as absorptive capacity (ACAP), “the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends” (ibid., p.128). Firms that excel in ACAP are effective in recognizing, assimilating, and exploiting external knowledge and are thus likely to obtain competitive advantages over competitors. Several researchers (Szulanski, 1996; Tsai, 2001; Mowery et al., 1996) have acknowledged ACAP as the most significant source of knowledge transfer and a lack of ACAP to be a major barrier to both internal and external knowledge transfer within and between firms. Zahra and George (2002) redefined ACAP into a two-stage capability consisting out of potential absorptive capacity (PACAP) and realized absorptive capacity (RACAP).
When organizations share their knowledge in an alliance or other form of cooperation, opportunities arise for the partnering firms to absorb each others knowledge-based resources (Mesquita et al, 2008; Mayer, 2006). The ACAP of a firm determines whether the firm is able to absorb and transform the shared or spilled-over knowledge and capture its value. Innovation theory (e.g., Lane and Lubtakin, 1998; Lahiri and Narayanan, 2013) reveals that interfirm relationships play an important role in innovation activities. It thus can be beneficial for firms to broaden their scope and cooperate with other firms outside of the firms’ boundaries.
6 both the explicit as well as the implicit rules of the exchange between partners (Ghosh and John, 2005). Since the exchange of knowledge between partners is controlled with governance, it is implied that the type and amount of governance will influence not only the knowledge exchange itself, but also a firm’s ACAP. In addition, the use of governance mechanisms tends to change over time and depends not solely on the firms but also on the importance of the relationship.
Relation-specific investments (RSI) can be seen as investments in a relationship whose returns depend on the continuation of the relationship (Crawford, 1990) and thus function as an extension of a firm’s governance. Since these investments are relation-specific they are of limited use outside the relationship and thus function as a form of protection, since “the mutually-imposed costs of termination” (Poppo and Zenger, 2002, p.710) will prevent firms from opportunistic behaviour or ending the relationship ahead of time. Moreover, RSI can be used to signal commitment and willingness to cooperate (Zhao and Wang, 2011). RSI result into idiosyncratic resources which can facilitate the development of ACAP and help firms achieve positions of competitive advantage (Ghosh and John, 1999) in addition to being an important antecedent and crucial driver of exchange performance (Palmatier et al., 2007).
The aim of this study is to advance the understanding of the underlying dimensions and drivers of interfirm ACAP, based on the PACAP and RACAP conceptualization of Zahra and George (2002). Following Schleimer and Pedersen (2013), this study thus adds to the need to explore the effect of the antecedents of absorptive capacity in relation to one another rather than seperately (Jansen et al., 2005; Lane et al., 2006).
The contribution of this study to the literature is threefold:
7 Second, this study examines both buyer and supplier data seperately, providing insights into the perception of the relationship from both sides. Dyadic data was gathered from both partners and matched-pair relationships are examined (Berger, 2015), since existing literature tells us that the perceptions of the relationship might differ for each partner (Oosterhuis et al., 2013; Ambrose et al., 2010). Especially in combination with governance and RSI, the matched-pair relationships will provide unique insights into the perception of both partners in the dyad.
Third, several researchers (e.g., Poppo and Zenger, 2002; Cannon et al., 2000; Li et al., 2010; Yang et al., 2012) have pointed out the interplay between contractual and relational governance from a transaction cost economics (TCE) view, and indicated its influence on relationship performance, opportunism, and satisfaction. This study looks at the influence of contractual and relational governance on a firms PACAP and RACAP from a resource-based view (RBV), focusing on learning, knowledge sharing, and value creation. This is a novell view and fills a gap in the existing literature. Furthermore, by taking both governance mechanisms and RSI into account, this study complements the study carried out by Jansen et al. (2005), which solely assessed the influence of formalization (contractual governance) on PACAP and RACAP.
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2. Absorptive Capacity, Governance Mechanisms, and
Interfirm Relationships
This chapter introduces the main factors that make up this study’s conceptual framework. At the end of the chapter an overview of the conceptual model is shown. In the subsequent chapter, an in-depth literature review regarding the constructs of the conceptual model is provided after which the hypotheses are presented. Accordingly, the methodology, statistical procedures, and results of the research will be presented after which the final chapter will discuss the findings of the emperical study and suggest managerial implications, limitations, and directions for future research.
2.1 Absorptive Capacity
9 external knowledge can be seen as a crucial factor of innovation capabilities. Cohen and Levinthal (1990) define the capability to exploit external knowledge as absorptive capacity: “the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends” (ibid., p.128). Following this definition, Mowery and Oxley (1995) proposed a definition of absorptive capacity and delineate it as a broad set of skills needed to deal with the tacit component of transferred knowledge and the need to modify this imported knowledge (Zahra and George, 2002). In addition, Kim (Kim, 1997; Kim, 1998) offers a brief definition for absorptive capacity as the capacity to learn and solve problems.
According to Cohen and Levinthal (1990) the level of prior related knowledge largely determines a firm’s ACAP. Prior related knowledge, including basic skills, related knowledge domains, shared languages, and prior learning experiences, is necessary because without it, firms will not be able to understand the new knowledge and ultimately fail to absorb it (Cohen and Levinthal, 1990; Todorova and Durisin, 2007). It is important to make a distinction between new knowledge that can successfully be transformed to fit the firms prior knowledge and new knowledge that calls for a need to change the entire firms knowledge structure (Todorova and Durisin, 2007). Accordingly, new knowledge should partly be very closely related to the existing knowledge to allow for absorption, and partly be moderately distant, although still relevant to the existing knowledge, to allow for adequate and innovative assimilation (Cohen and Levinthal, 1990).
In addition to prior-related knowledge, internal R&D investment can be considered as one of the fundamental antecedents in the creation of ACAP (Mowery and Oxley, 1996; Tsai, 2001; Xia and Roper, 2008). Internal R&D investments allow a firm to create their own knowledge, and can be perceived as providing a firm with means to cope with external knowledge and to adapt to the alliance partners’ knowledge base. If a firm witholds itself from making internal R&D investment, it may become exceedingly difficult and demanding to relate to partner firms’ knowledge bases and absorb and assimilate external knowledge in general.
10 firm determines whether the firm is able to absorb and transform the knowledge and capture its value.
Several researchers have studied the effects of absorptive capacity at different levels of analysis while adopting multiple measures of this construct (Zahra and George, 2002). Three levels of analysis are most commonly used: national (Mowery and Oxley, 1995; Keller, 1996), interfirm (Lane and Lubatkin, 1998), and firm (Cohen and Levinthal, 1990; Zahra and George, 2002; Szulanski, 1996; Kim, 1998; Van Den Bosch et al., 1999), of which the interfirm level is least applied, although researchers on all levels of analysis emphasize the interfirm condition and dependence of ACAP.
2.1.1 Dimensions of ACAP
As mentioned in the previous section, several researchers (Cohen and Levinthal, 1990; Mowery and Oxley, 1995; Todorova and Durisin, 2007) have proposed a range of antecedents of absorptive capacity, such as investments in R&D to develop one’s absorptive capacity. The research on absorptive capacity and the antecedents of it, ultimately led to a review of the ACAP concept by Zahra and George (2002). Based on their research they proposed a reformulation of the definition of absorptive capacity as “a set of organizational routines and processes by which firms acquire, assimilate, transform and exploit knowledge to produce a dynamic organizational capability” (ibid., p.186). This reformulation vastly broadens the ACAP concept and further distinguishes it into two components, potential absorptive capacity (PACAP) and realized absorptive capacity (RACAP). The four capabilities of absorptive capacity can be seen as four different but complementary dimensions which all have a role in explaining in which way ACAP can affect the outcomes of the firm (ibid.). Recognizing absorptive capacity as a dynamic capability allows it to be tested on different antecedents. Existing literature often associates the concepts of PACAP and exploration and RACAP and exploitation (Jansen et al., 2005; Lavie and Rosenkopf, 2006).
2.1.2 Potential Absorptive Capacity
11 refers to “a firm’s capability to identify and acquire externally generated knowledge that is critical to its operations” (ibid., p.189). The second component of PACAP focuses on the assimilation of knowledge. The assimilation capability refers to “the firm’s routines and processes that allow it to analyze, process, interpret and understand the information obtained from external sources” (Zahra and George, 2002, p.189; Kim, 1997; Szulanski, 1996).
2.1.3 Realized Absorptive Capacity
In line with PACAP, RACAP also consists of two components, namely the firm’s transformation capability which can be seen as “a firm’s capability to develop and refine the routines that facilitate combining existing knowledge and the newly acquired and assimilated knowledge” (Zahra and George, 2002, p.190) and a firm’s exploitation capability which can be seen as “the capacity of a firm to apply the newly acquired knowledge in product or services that it can get financial benefit from” (ibid., p.190). RACAP thus can be seen as a function of the firm’s transformation and exploitation capabilities.
2.1.4 Antecedents to ACAP and its Dimensions
As the ACAP construct was distinguished into two components, additional antecedents came into play to more specifically test the influence on the different components, in addition to the established antecedents of ACAP, such as prior related knowledge (Cohen and Levinthal, 1990; Van Den Bosch et al., 1999; Gupta and Govindarajan, 2000; Lane and Lubatkin, 1998.), internal R&D investments and intensity (Mowery et al., 1996; Tsai, 2001; Xia and Roper, 2008), and organizational form and structure (Van Den Bosch et al., 1999; Lane and Lubatkin, 1998.). As stated by Jansen et al. (2005), firms focusing on PACAP will be able to renew their knowledge but may experience high acquisition costs without benefiting from exploiting the knowledge, whereas firms focusing on RACAP will be able to gain short-term benefits but fail on the long-term, resulting in an inability to respond to changes in its environment. Hence, it is important to determine which antecedents influence PACAP and which influence RACAP. This will also help in revealing why some firms have problems managing and balancing PACAP and RACAP simultaneously (ibid.).
12 tactics) capabilities, and found that a unit’s PACAP benefits from well-developed coordination capabilities. In contrast, they found that RACAP is primarily increased by socialization capabilities. For systems capabilities, among which formalization was examined, they found no significant results (ibid.).
Xia and Roper (2008) test R&D intensity, employee skills and continuous R&D as antecedents for PACAP, and find a significant influence for continuous R&D, specifically that a firm’s engagement in explorative cooperation is largely determined by continuous R&D. In addition, they find significant differences between US firms and EU firms, implying that the antecedents of PACAP differ between markets and cultures.
Schleimer and Pedersen (2013) look at the drivers of ACAP in subsidiaries. They used the three dimensions (recognition, assimilation, and application) proposed by Cohen and Levinthal (1990) to measure ACAP, instead of measuring PACAP and RACAP. Their results indicate that in a subsidiary context, the combination of market turbulence and organizational mechanisms affect ACAP.
2.2 Governance Mechanisms
13 governance has been thoroughly researched from a TCE view, and the combination of both has been so apparent, this research will focus on the separate influence of each of the two governance mechanisms on a firm’s ACAP. Rather than looking at the interplay from a TCE view, this study will examine the interplay from a RBV, in a knowledge sharing and value creating context.
2.3 Interfirm Relationships
Innovation theory (e.g., Lane and Lubtakin, 1998; Lahiri and Narayanan, 2013) reveals that interfirm relationships play an important role in innovation activities. Interfirm relationships take a variety of forms and can potentially provide significant synergy for the participants (Fowler and Reisenwitz, 2013). It thus can be beneficial for firms to broaden their scope and cooperate with other firms outside of the firms’ boundaries. The study of Johnson (1999) revealed that dependence, flexibility, continuity expectations, and relationship age encourage a distributor’s strategic integration of its supplier relationship. Another important factor influencing the buyer-supplier relationship is the type of monitoring. Monitoring can be done either on output or on behaviour (Heide, 1994). This research is based on the buyer-supplier relationship, implying that both parties in the relationship will be equally evaluated. Treating both sides equally is important since buyers and suppliers have significantly different perceptions of their relationships across a range of dimensions (Ambrose et al., 2010; Oosterhuis et al., 2013).
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2.4 Conceptual Model
The hypotheses proposed in the following chapter are illustrated by figure 1, summarizing the expected relationships into a conceptual model. It is hypothesized that governance mechanisms, both contractual and relational, and relation-specific investments contribute to the development of a firm’s ACAP. In addition to the main concept, the interplay between both governance mechanisms, the influence of PACAP on RACAP and the role of turbulence in this relationship are taken into account. Relationship duration and importance function as control variables for the model. The following chapter will further elaborate on the variables and the links between them.
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3. Depiction of the Variables and their Links
3.1 Contractual Governance
Contractual governance, also referred to as contracting, formalization, and formal protection mechanisms, can be seen as all formalized agreements within the interfirm relationship: the explicit rules of exchange (Ghosh and John, 2005). It is the extent to which instructions, processes, rules, and communication are defined in written contracts or formal documents (Jansen et al., 2005). Contractual governance provides support in the more vulnerable, early phases of cooperation to assure successful exchange (Poppo and Zenger, 2002) and reduces both cooperating partners worries about opportunism since it establishes a certain amount of transparency to the exchange relationship (Noordhoff et al., 2011; Wathne and Heide, 2000).
16 the finding that employees will be better enabled to carry out their functions and tasks if procedures and rules are formalized to some extent (Adler and Borys, 1996). In addition, Zollo and Winter (2002) propose that the diffusion and replication of an exploratory innovation might be enabled by the formal codification of new knowledge, and thus, formalization might add to the exploratory orientation of a firm as well.
Recent research (Faems et al., 2008; Malhotra and Lumineau, 2011) on the coordination function of contracts has, instead of the often mentioned control function, highlighted that contractual governance from a coordination function, might show commitment to the relationship instead of a lack of trust (Woolthuis et al., 2005). Contractual governance thus can be assumed to be of value in improving relational trust and promotes the development of shared knowledge bases (Carson et al., 2006).
In sum, considering that low to intermediate levels of contractual governance might have a positive effect on PACAP, since it enables the exploration, assimilation, and diffusion of new knowledge, and based on the mixed results found in previous research for the effect of contractual governance, in addition to the suggestion from empirical research that formalization is not necessarily detrimental to PACAP, this study proposes that, to some extent, contractual governance positively influences PACAP until it becomes too apparent, then the positive effect turns negative. Thus, the following hypotheses are proposed:
Hypothesis 1a/b: Contractual governance will have a positive relationship with PACAP
(H1a), that levels off at higher levels of contractual governance (H1b).
17 In sum, in line with the findings of Jansen et al. (2005) and Jansen et al. (2006), the effect of contractual governance on RACAP is expected to be positive. Thus, the following hypothesis is proposed:
Hypothesis 1c: Contractual governance will be positively related to RACAP
3.2 Relational Governance
Relational governance, in contrast to contractual governance, can be defined as the implicit rules of exchange, and comprises of relational norms and trust. Since this form of governance is implicit, it cannot be ‘implemented’ and has to develop over time. The duration of the relationship thus has an impact on relational governance since the development of relational norms occurs as the exchange relationship ages and matures (Macneil, 1980). As Poppo and Zenger (2002) already summarized in their paper, the majority of emperical research indicates that relational governance is related to trust, and trust has a positive effect on interfirm exchanges (Heide and John, 1990). As mentioned earlier, relational governance can be seen as the combination of relational norms and trust. Interfirm relationships that encourage trust between partners might enhance the creation of relational rents (Dyer and Singh, 1998). Trust can be seen “as an expression of confidence between the parties in an exchange of some kind—confidence that they will not be harmed or put at risk by the actions of the other party or confidence that no party to the exchange will exploit the other's vulnerability” (Jones and George, 1998, p.531-532). The exchange of knowledge and information is not likely if there is a lack of trust, since firms tend to protect their knowledge in regard of spillovers and opportunism. Due to trust, partners are more likely to share sensitive information and are often more willing to creatively and constructively cooperate (Selnes and Sallis, 2003).
18 essential that firms are capable of shaping a setting in which trust can develop during the relationship. Inkpen and Currall (2004) propose that interfirm trust can be increased by repeated successful transactions between both firms. Jones and George (1998) further argue that firms can develop stable expectations of each other through trust, which allows them to routinize their transactions and activities ultimately leading to more reliability and predictability. Hence, partners are more inclined to develop shared knowledge bases outside of their own firm borders, accessible to both partners, as mutual trust increases (Selnes and Sallis, 2003). Lane et al. (2001) find that trust between parent and support in international joint ventures can be associated with performance and, if trust exists, it positively affects both financial and relational outcomes (Palmatier et al., 2007). Palmatier et al. (2007) also state that high environmental uncertainty increases the effect that interfirm relationships have on collaboration. Therefore, as trust evolves over time firms will open up and the sharing of knowledge will become increasingly self-evident. Both dimensions of ACAP will benefit from the increase of trust over time. PACAP, as a result of firms opening up and being more willing to share their knowledge, and RACAP, because trust will allow for easier sharing with less formal agreements.
19 In sum, based on these findings, a positive effect of relational governance is expected, until relational governance becomes too high, after which a firm’s ACAP will be negatively affected. The strongest effect thus might be found on intermediate levels of relational governance. Thus, the following hypotheses are proposed:
Hypothesis 2a/b: Relational governance will have a positive relationship with PACAP (H2a),
that levels off at higher levels of relational governance (H2b).
Hypothesis 2c/d: Relational governance will have a positive relationship with RACAP (H2c),
that levels off at higher levels of relational governance (H2d).
3.3 The Interplay between Contractual and Relational Governance
20 function as substitutes, whereas for international cooperation, no significant results were found.
In sum, although research from a TCE view finds that contractual and relational governance are complementarity (Poppo and Zenger, 2002) and combined have a positive influence on performance and satisfaction (Cao and Lumineau, 2015), studies (Wang et al., 2011; Li et al., 2010) from a RBV indicate that the two governance mechanisms function as substitutes in increasing innovation performance. Since this study focuses on creating value, sharing knowledge, and ACAP, it is proposed that contractual and relational governance function as substitutes rather than as complements. Thus, the following hypothesis is proposed:
Hypothesis 3: Contractual and relational governance mechanisms function as substitutes
3.4 Relation-Specific Investments
21 indicating the coherence between governance mechanisms and RSI, and their joint influence on ACAP.
On the other hand, RSI also bring potential risk. Rokkan et al. (2003) state that since RSI cannot be easily used in other relationships, they establish a “lock-in situation for the investor” (p.211). The receiver could use this lock-in to their benefit and opportunistically exploit the investments made by the partner. The danger of opportunism might result into a diminished impetus for a firm to make RSI (Wathne and Heide, 2000), but since RSI comprise of dedicated assets and have the potential to build significant value for both parties, they might dampen opportunistic behaviour (Rokkan et al., 2003) and improve trust since the investing party shows their willingness to cooperate and invest in the relationship. If the benefits of the RSI are high, the RSI might ‘bond’ both partners and discourage opportunism (Rokkan et al., 2003), indicating that RSI may increase and support the long-term duration of the relationship. Zhao & Wang (2011) state that RSI increase the willingness of partners to expand the cooperation activities, since these investments show and partially guarantee commitment. If RSI become more apparent, partners will be more favorable towards long-term contracts (Joskow, 1987). In addition, Rokkan et al. (2003) found that the positive effect of RSI on opportunistic behaviour became negative as the expectation of relationship continuity became more significant.
In sum, it is expected that both dimensions of ACAP will benefit from RSI. PACAP will benefit from RSI since they indicate commitment and the willingness to share (Zhao and Wang, 2011) and will allow for better sharing of knowledge, since these RSI will function as R&D investments in the interfirm relationship. In addition, by creating dedicated assets they might dampen opportunistic behaviour (Rokkan et al., 2003). RACAP will benefit from RSI because they improve the efficiency and exploitation of the relationship (Ghosh and John, 1999) and will allow firms to work together more efficiently, share knowledge, and improve performance, while assuring cooperation over a longer period of time (Poppo and Zenger, 2002). Finally, RSI are an important antecedent of exchange performance (Palmatier et al., 2007) and thus will improve a firm’s ACAP as a whole. Thus, the following hypotheses are proposed:
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3.5 Interdependence between PACAP and RACAP
Since a firm has to acquire knowledge before it can possibly exploit it, “PACAP and RACAP have separate but complementary roles” (Zahra and George, 2002, p.191). Likewise, a firm might lack the ability to transform acquired external knowledge and subsequently exploit it in order to generate profit (ibid.) although it is able to acquire and assimilate it. Accordingly, PACAP and RACAP are complementary and thus increasing investments or performance in one of the dimensions will expand the value derived from the other (Milgrom et al., 1991). Mursitama (2011) finds theoretical evidence confirming Zahra and George’s (2002) reconceptualization of ACAP and suggests the sequential process from PACAP towards RACAP. In addition, Ebers and Maurer (2014) likewise argue that a firm’s PACAP and RACAP “have separate but complementary roles in enhancing innovation and performance” (p.327). The study of Leal-Rodriguez et al. (2014) indicates a positive direct effect of PACAP on RACAP, which is positively moderated by relational learning.
Since the data allows us to measure the multiple dimensions of ACAP directly, in contrast to previous research that predominantly used proxies such as patents and R&D expenditures, the effect of PACAP on RACAP can be accurately and empirically measured.
One would expect that a high level of PACAP would allow for/lead to a higher RACAP, even if RACAP is low. Accordingly, one would expect that a low level of PACAP would allow for/lead to a lower RACAP, even if RACAP is high. Ebers and Maurer (2014) found support for their conjecture that PACAP and RACAP complement each other in enhancing innovation, and state that firms with a high RACAP show more innovativeness for any level of PACAP than firms with low RACAP. The reason is that firms with stronger RACAP will be able to transform more of the knowledge they acquire and will apply more of this transformed knowledge to its product development, thus generating more innovation outcomes. On the other hand, it seems reasonable to expect that the higher a firm’s PACAP for any level of RACAP, the higher the firms’ innovativeness will be (ibid.).
In sum, since PACAP and RACAP are interdependent, a certain level of PACAP is necessary for RACAP, and since PACAP has a decisive influence on RACAP (Leal-Rodriguez, 2014), the following hypothesis is proposed:
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3.6 Turbulence
Turbulence can be seen as the external forces influencing the interfirm relationship, over which both partners have no (or very little) control. It is important to take the environment into account since the potential value of a relationship can be disrupted by turbulence, for example if technology changes, competition increases, or buying behaviour diversity is high, and the turbulence in the environment might determine the valuation of dynamic capabilities (Eisenhardt and Martin, 2000). Turbulence was split up into two different constructs: market dynamism, which is a combination of technological turbulence, “the rate of technological change” and competitive intensity (Jaworski and Kohli, 1993, p.57), and customer diversity, the rate of change and degree of heterogeneity in the composition of customers and their needs and preferences (Achrol and Stern, 1988; Jaworski and Kohli, 1993).
Previous research (Hanvanich et al., 2006) indicated that “the value of a firm’s stored knowledge” might decrease due to market dynamism (Noordhoff et al., 2011, p.40) and knowledge might become obsolete sooner (Droge et al., 2008). In turbulent environments, according to Selnes and Sallis (2003), it is important to be flexible and be able to quickly adjust and conform the firm to changes. Thus, to cope with turbulent environments, firms might tend to acquire new external knowledge (Cassiman and Veugelers, 2006; Jap, 1999; Selnes and Sallis, 2003) and may be triggered to develop their PACAP and RACAP (Jansen et al., 2005). Firms in turbulent environments especially tend to be more inclined to develop their PACAP (Zahra and George, 2002). In addition, Jansen et al. (2005) find that organizational units which increase their PACAP can improve their performance within a dynamic market.
24 exploitative focus (ibid.). Previous research (Zahra and George, 2002; Leal-Rodriguez et al., 2014) has examined ACAP on the intrafirm level and therefore considered internal sources of moderating effects such as social integration mechanisms (Zahra and George, 2002) and relational learning (Leal-Rodriguez et al., 2014). This study views ACAP from an interfirm perspective and therefore considers the moderating roles of market dynamism and customer diversity, as influencers between a firms’ capability to acquire and assimilate, and its capability to transform and exploit new external knowledge.
In line with the previous paragraph on the interdependence between PACAP and RACAP, in which it was stated that PACAP and RACAP are complementary and thus increasing investments or performance in one of the dimensions will expand the value derived from the other (Milgrom et al., 1991), in addition to the positive direct effect of PACAP on RACAP (Leal-Rodriguez et al., 2014), it is proposed that market dynamism and customer diverstiy will drive a firm to develop ACAP with an exploratory focus (Van den Bosch et al., 1999) to be flexible and be able to quickly adjust and conform the firm to changes (Selnes and Sallis, 2003), and therefore the effect PACAP has on RACAP will become stronger. Hence, the following hypotheses are proposed:
Hypothesis 6a: Market dynamism positively affects the relationship between PACAP and
RACAP
Hypothesis 6b: Customer diversity positively affects the relationship between PACAP and
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4. Research Methodology
4.1 Data Collection Methods
Data were collected from 166 matched-pair relationships to test the proposed hypotheses. Since this study’s unit of analysis is the relationship between buyer and supplier, thus not the individual firm, both sides from the vertical matched-pair dyad are included. The questionnaire was designed to address issues regarding the collaboration between the firms instead of the individual firms. To support variance, and since prior research (Lichtenthaler and Ernst, 2007) pointed out that knowledge strategies differ for each industry, respondents are employees from firms in the automotive, machinery, chemicals, pharmaceuticals, semiconductors, and electronics industries. Buyer-respondents were located in the Netherlands, whereas the supplier-respondents were located all over the world. Relationships are not directly observable, and are thus susceptible to measurement error (Selnes and Sallis, 2003). To collect information concerning the relationship, the study therefore uses data from key informants from both sides of the dyad, as suggested by John and Reve (1982) and Lane and Lubatkin (1998). Key informants on the buyer side were approached and requested to identify employees who were central to their customer relationships. A focus on customer relationships is necessary since the respondents need to have specific knowledge to fill in the questionnaire regarding the interfirm relationship. Working position, duration of involvement in the relationship, and percentage of time spend on the relationship were determined while selecting the respondents. Service firms were not included in the study since “firms in manufacturing industries tend more to perform R&D activities while firms in service industries tend more to acquire technology” (Arbussà and Coenders, 2007, p.1547). While selecting firms, a 2x2 design was used to prevent selection bias. The dimensions used were the length of the relationship (either greater or less than two years) and product importance (either average or crucial). All collected data, from both sides of the relationship, was treated confidentially. The questionnaire can be found in appendix A.
4.1.1 Descriptives
26 respondents did not specify the industry they are in. The mean length of the relationships studied was 11.03 years (sd = 9.79).
4.2 Statistical Procedure and Measures
The scales used in this study were taken from existing literature on buyer-supplier relationships, firm learning, intrafirm learning, and interfirm learning. If necessary, scales were adapted or extended in order to measure the specific vertical interfirm relationship purpose of this study. The current study uses first- and second-order constructs. “A first-order construct is a latent construct that has observed variables as indicators, whereas second-order constructs have other latent (first-order) constructs as their indicators” (Berger, 2015, p.91), i.e. PACAP is a second-order construct that consists out of the first-order constructs of ‘aqcuisition’ and ‘assimilation’. All first-order constructs consist out of multiple indicators measured on a 7-point Likert scale ranging from 1 (strongly disagree) to 7 (strongly agree) (e.g., Jap, 1999). Reversed coding was used on several indicators to make sure that respondents did not fill in the questionnaire without paying attention. All reversed indicators were recoded afterwards. This study differentiates between formative and reflective measurement scales, based on the causal link between the indicators and latent constructs. If a construct consists out of formative indicators, the indicators measure separate aspects of the same construct, and thus, are not directly related (Hair et al., 2011). The latent construct changes if indicators are deleted or if the values of the indicators change (Berger, 2015). In contrast, if a construct consists out of reflective indicators the value of the indicators changes if the value of the latent variable changes (ibid.), which is assumed to result in high correlations between indicators (Jarvis et al., 2003). Accordingly, the difference between both types of indicators calls for distinct approaches regarding the assessment of reliabilty and validity.
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4.2.1 Measures
Contractual governance (also referred to as formal protection mechanisms, contracting, or formalization), can be seen as all formalized agreements within the interfirm relationship: the explicit rules of exchange (Ghosh and John, 2005). It is the extent to which instructions, processes, rules, and communication are defined in written contracts or formal documents (Jansen et al., 2005). The used measures were obtained from Deshpande and Zaltman (1982), Cannon and Perreault (1999), Buvik and Reve (2002), and Jansen et al. (2006).
Relational governance, in contrast to contractual governance, can be defined as the implicit rules of exchange, and is often captured under relational norms and trust. Relational governance (a second-order construct) was assessed using measures developed by Heide and John (1992), representing flexibility, information exchange, and solidarity norm types (first-order constructs).
The relation-specific investments measure was taken from Lambe et al. (2002). Since they found that two indicators did not pass validity tests, these indicators were adjusted to make sure the indicators would be interpreted correctly. Both indicators were included in the questionnaire by changing ‘we’ into ‘we both’.
Absorptive capacity can be seen as “a set of organizational routines and processes by which firms acquire, assimilate, transform and exploit knowledge to produce a dynamic organizational capability” (Zahra and George, 2002, p.186). Specifically for this study, Berger (2015) generated scales for the four dimensions of ACAP, since no appropriate scales were available. Definitions and components of the ACAP dimensions were drawn from Zahra and George (2002), and since ACAP is conceived as a dynamic capability, all of its dimensions refer to capabilities (Lane et al., 2006).
Potential Absorptive Capacity exists out of acquisition and assimilation. PACAP (a second-order construct) was measured by combining the dimensions of acquisition and assimilation (first-order constructs).
28 acquisition construct measure. The generated measures were based on measures by Szulanski (1996) and Camisón and Forés (2010).
Assimilation capability is referred to as “the firm’s routines and processes that allow it to analyze, process, interpret and understand the information obtained from external sources” (Zahra and George, 2002, p.189; Kim, 1997; Szulanski, 1996). Understanding (interpretation, comprehension, learning) is its relevant component. The generated measures were based on measures by Jansen et al. (2005) and Camisón and Forés (2010).
Realized absorptive capacity exists out of transformation and exploitation. RACAP (a second-order construct) was measured by combining the dimensions of transformation and exploitation (first-order constructs).
Transformation can be seen as “a firm’s capability to develop and refine the routines that facilitate combining existing knowledge and the newly acquired and assimilated knowledge” (Zahra and George, 2002, p.190). The components of transformation are internalization and conversion. The generated measures were based on measures by Bontis et al. (2002), and Cadiz et al. (2009).
Exploitation can be seen as “the capacity of a firm to apply the newly acquired knowledge in product or services that it can get financial benefit from” (Zahra and George, 2002, p.190). The relevant components are use and implementation (core competencies, harvesting resources). The generated measures were based on measures by Jansen et al. (2005), Cadiz et al. (2009), and Camisón and Forés (2010).
Turbulence consists out of two first-order constructs, market dynamism and customer diversity. Market dynamism refers to the uncertainty and instability within the market (Jaworski and Kohli, 1993) and measures the competitive intensitity and rate of technological change. The used measure was obtained from Jaworski and Kohli (1993). The measure for customer diversity, the rate of change and degree of heterogenity in the composition of customers and their needs and preferences (Achrol and Stern, 1988; Jaworski and Kohli, 1993), was based on previous work from Achrol and Stern (1988). Both constructs are formative and consist out of five indicators.
4.2.2 Control Variables
29 since they have an increasing amount of interactions and thus assemble experience in cooperating with each other (Mayer and Argyres, 2004; Mesquita and Brush, 2008).
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5. Results
5.1 Data Reliability and Validity
First off, relationship duration and importance were used as control variables to determine their influence on the R2. The influence of the control variables was tested by calculating the R2 and examining the direct effects of the separate control variables on PACAP and RACAP. In total, four models were calculated since the control variables were added to the model one at a time. The results for the control variables can be seen in table 1. The direct effects of the control variables on the dependent variables were not significant (all p-values >.10). It therefore can be concluded that since both control variables do not have a significant effect in determining the R2, they do not have explanatory power and were removed from the model
for further analyses.
TABLE 1
Coefficient of determination R2 control variables
Buyer Supplier
Mod. 1 Mod. 2 Mod. 3 Mod. 4 Mod. 1 Mod. 2 Mod. 3 Mod. 4
PACAP .408 .413 .412 .416 .226 .233 .228 .235
RACAP .460 .464 .460 .465 .310 .317 .314 .321
Note: Mod. = Model. Mod. 1: no CV; Mod. 2: CV importance; Mod. 3: CV duration; Mod. 4: both CV.
31 In addition, if the data for the constructs differs significantly, the associations between the dimensions may differ as well (Oosterhuis et al., 2013). Accordingly, data analyses were performed with a ‘buyer-only’ database (n = 166) and a ‘supplier-only’ database (n = 166).
TABLE 2
Paired Samples Correlations
Correlation Sig.
Pair 1: SupplierPACAP & BuyerPACAP .177 .026
Pair 2: SupplierRACAP & BuyerRACAP .197 .016
Pair 3: SupplierContr. Gov. & BuyerContr. Gov. .533 .000 Pair 4: SupplierRelat. Gov. & BuyerRelat. Gov. .227 .004 Pair 5: SupplierRelationSI. & BuyerRelationSI .391 .000
TABLE 3 Paired Samples Test
t df Sig.
Pair 1: SupplierPACAP & BuyerPACAP 3.076 157 .002 Pair 2: SupplierRACAP & BuyerRACAP 3.335 147 .001 Pair 3: SupplierContr. Gov. & BuyerContr. Gov. 1.525 160 .129 Pair 4: SupplierRelat. Gov. & BuyerRelat. Gov. 2.960 162 .004 Pair 5: SupplierRelationSI. & BuyerRelationSI 4.884 163 .000
Since this study uses both reflective and formative indicators, distinct approaches regarding the assessment of reliabilty and validity were necessary. The construct reliability for the reflective measures was assessed using Cronbach’s Alpha and composite reliability. The results can be found in table 4, and show that all Alpha’s, for both buyer and supplier databases, can be considered reliable since all values are above the cut-off value of .7. The only scale below .7 is that of Flexibility in the buyer-only database (α=.673). Since the alpha for the second order construct Relational Governance is .705 and thus the average of the first order constructs is above .7, and since flexibility is part of a validated scale for relational governance taken from previous research and all indicators within the first order Flexibility construct have Alpha’s above .7, the construct was maintained in the analysis.
32 Construct validity was analysed using factor analysis (convergent validity) and assessed on the AVE (average variance extracted) (discriminant validity) (Coltman et al., 2008; Fornell and Larcker, 1981). To confer convergent validity, the factor loadings should be at least .5 or higher with p-values below .05 (Hair et al., 2012; Sarstedt et al., 2014). Table 4 shows that all loadings are significant, indicating convergent validity for all reflective constructs. The only indicator with a loading below .5 is Contractual1 (.490) in the supplier database. Since the value is exceptionally close to .5, and the construct was tested and validated in previous research, the indicator was maintained in the construct.
TABLE 4
Construct reliability and convergent validity of reflective scales
Constructs Buyer Supplier
33
Note: (2nd) = second-order construct
To check discriminant validity in PLS, the Average Variance Extracted (AVE) is used to indicate the average amount of variance a construct effectively can explain of its indicators. The AVE should be higher than .5 (Fornell and Larcker, 1981). Table 8 shows the AVE values for the overall database (n=332). As can be concluded from the values, discriminant validity exists for all reflective constructs based on their AVE.
In addition to the AVE measure for discriminant validity, PLS calculates the Fornell-Larcker Criterion (Fornell and Fornell-Larcker, 1981), which instead of looking at the discriminant validity on indicator level, looks at the validity on the construct level. It assumes that the AVE of a construct is higher than the squared correlation of all other constructs. As can be seen in table 5, all square roots of the AVE for the constructs are higher than the other correlations. Accordingly, discriminant validity is supported by the Fornell-Larcker Criterion.
TABLE 5
Fornell-Larcker Criterion
Contractual Diversity Dynamism PACAP RACAP RSI Relational Contractual 0.741 Diversity -0.128 0.800 Dynamism 0.045 0.187 0.599 PACAP 0.088 0.019 0.104 0.660 RACAP 0.095 0.008 0.107 0.724 0.662 RSI 0.272 -0.079 0.170 0.432 0.452 0.802 Relational -0.036 0.063 0.039 0.449 0.528 0.329 0.682 Note: n = 332.
For formative measures, factor analysis and Cronbach’s Alpha are impractical, because correlation amongst formative indicators is not necessarily high (Rossiter, 2002). Therefore, there exist no universally accepted criteria to assess formative constructs on their reliability
Solidarity .814 .890 .842 .905
Solidarity1 .896 .851
Solidarity2 .857 .928
Solidarity3 .806 .835
Relat. Spec. Invest. .887 .914 .881 .909
34 (Coleman et al., 2008). Since a formative construct consists out of formative indicators, the indicators measure separate aspects of the same construct, and thus, are not directly related (Hair et al., 2011). Deleting one or more indicators might result in ‘changing’ the meaning of the construct, and thus deletion should be carefully considered. To assess the validity of formative constructs, the weights and variance inflation factors (VIF) were used. To guarantee the absence of multicollinearity, indicators with VIF levels higher than 3.3 will be rejected (Diamantopoulus and Siguaw, 2006). Table 7 indicates that none of the measures had a VIF value higher than 3.3, and thus the measures can be seen as properly constructed.
Except for five indicators, all weights were appropriate and significant at the <0.05-level. Diversity5 showed inadequate values for both indicator weight and p-value, and thus was removed from the database. Since this indicator measured ‘nationality’, and the database primarily consists out of Dutch respondents, this was not problematic for the construct of customer diversity. In addition, four more indicators (Acquisition2, Transformation2, Transformation3 and Transformation5) showed inadequate weights and p-values. Since all these indicators belonged to pairs of questions measuring the same (e.g., Transformation1 measured the same as Transformation2, Acquisition1 measured the same as Acquisition2), they could be removed from the database without altering the formative construct’s meaning. The indicator weights and p-values for the deleted indicators are shown in table 6. In total, five indicators were removed from the measurement model.
TABLE 6
Deleted formative indicators
Buyer Supplier
Indicator Weights p-value Indicator Weights p-value
Diversity5 .022 .699 .031 .533 Acquisition2 .084 .235 .059 .920 Transformation2 .088 .207 .120 .045 Transformation3 .093 .080 .091 .111 Transformation5 .088 .148 .103 .075 TABLE 7
Convergent validity of formative scales
Constructs Buyer Supplier
Indicators Indicator Weights
p-value VIF Indicator Weights
p-value VIF
Acquistion
Acquistion1 .279 <.001 1.302 .335 <.001 1.407
35 Subsequent to the reflective indicators, the formative indicators were also assessed on discriminant validity with AVE. The square roots of the AVE of the constructs were compared with the correlation coefficients of the respective construct. Table 8 shows the results for the discriminant validity of the first-order constructs of the overall database (n=332). Table 9 shows the results for the discriminant validity of the second-order constructs of the overall database (n=332) and indicates that adequate discriminant validity exists for the constructs since the measures have a higher correlation within their variable than across variables. The buyer-only and supplier-only databases showed statistical patterns similar to the overall database.
TABLE 8
First-order constructs: squared roots of the AVE and correlation matrix
36
9. Flexibility .187 .349 .302 .347 -.032 .516 .480 .129 .648
10. Dynamism .015 .151 .005 .134 .031 .001 .012 .150 -.024 .659
11. Diversity -.024 .047 .040 -.017 -.128 .028 .088 -.075 .033 .195 .640
Note: Diagonal bold values are AVE’s; n = 332.
TABLE 9
Second-order constructs: squared roots of the AVE and correlation matrix
1 2 3
1. Relational governance .702
2. PACAP .447 .810
3. RACAP .526 .729 .841
Note: Diagonal bold values are AVE’s; n = 332.
In sum, although reflective and formative scales need different measures to assess convergent and discriminant validity, and even though reliability can only be measured for reflective scales, the outcomes from the above-mentioned analyses indicate that the constructs are appropriate regarding validity and reliability and thus the hypotheses can be tested.
5.2 Hypotheses Testing
This paragraph discusses the testing of the hypotheses based on the structural model. The results presented in this section are calculated with SmartPLS3 with the following settings: PLS Algorithm ‘number of iterations (1.000)’ and Bootstrapping ‘number of bootstrapping samples (2500)’. To make the outcomes more reliable, higher numbers of iterations and samples were used, instead of using the default numbers (300 and 500). Both buyer-only and supplier-only databases will be analysed after which section 5.2.3 will give an overview of the results.
To test whether contractual and relational governance are complementary or function as substitutes (H3), the direct effects between relational and contractual governance were
37
TABLE 10
Direct effects between relational governance and contractual governance
Buyer Supplier
Software Beta p-value Beta p-value
SmartPLS3 -.158 .032 .059 .501
SPSS20 -.183 .020 .073 .358
In addition, to control whether the direct effects hold when examining correlations, partial correlation analyses were performed. As control variables, PACAP and RACAP were used alternately. Table 11 gives an overview of the partial correlation analyses outcomes.
TABLE 11
Partial correlations analyses
Buyer Supplier
Control Variable: Correlation p-value Correlation p-value
PACAP -.302 <.000 .087 .279
RACAP -.281 .001 .033 .683
Hypotheses H1b, H2b and H2d were also additionaly tested with SPSS20 with linear regression
curve estimations, and the derived graphs are displayed in appendix B.
5.2.1 ‘Buyer-only’ Database
In contrast to the expectations, no effect between contractual governance and PACAP has been found (β=0.101, p=0.113), and there was no evidence for an inverted U-shaped relationship (β=-0.002, p=0.968). In addition, no significant effect between contractual governance and RACAP has been found (β=0.078, p=0.193). Thus, the hypothesized positive effect of contractual governance on PACAP and RACAP was not found, and there was no evidence for an inverted u-shaped relationship between contractual governance and PACAP. Hence, H1a, H1b and H1c, are not supported by the data.
In line with the expectations, a positive effect (β=0.444, p=0.000) exists between relational governance and PACAP and evidence has been found to support an inverted U-shaped relationship (β=-0.077, p=0.023). In addition, a positive effect between relational governance and RACAP has been found (β=0.514, p=0.000) and there is significant evidence that an inverted U-shaped relationship exists between relational governance and RACAP (β=-0.124, p=0.001). Accordingly, H2a, H2b, H2c, and H2d are fully supported by the data.
38 In line with the hypotheses, a positive effect (β=0.308, p=0.000) of RSI on PACAP was found. In addition, significant evidence (β=0.256, p=0.000) was found for the positive effect of RSI on RACAP. Hence, the data found support for hypotheses H4a and H4b.
H5 is fully supported. PACAP has a strong positive effect on RACAP (β=0.769,
p=0.000).
The proposed positive moderation effect of market dynamsism on the relationship between PACAP and RACAP was supported by the data (β=0.137, p=0.024). In contrast, no effect was found (β=-0.027, p=0.654) for the moderation effect of customer diversity. Hence, the data indicate support for H6a but a lack of support for H6b.
All of the hypotheses and their results have been summarized in table 12 below.
TABLE 12
Overview of hypotheses for buyer-only database
Hypothesis þ/ý Dependent Independent β P-Value
H1a ý PACAP Contractual Gov. .101 .113
H1b ý PACAP - Quadratic -.002 .968
H1c ý RACAP Contractual Gov. .078 .193
H2a þ PACAP Relational Gov. .444 .000
H2b þ PACAP - Quadratic -.077 .023
H2c þ RACAP Relational Gov. .514 .000
H2d þ RACAP - Quadratic -.124 .001
H3 þ Contractual < > Relational Substitutes -.158 .032
H4a þ PACAP RSI .308 .000
H4b þ RACAP RSI .256 .000
H5 þ RACAP PACAP .769 .000
H6a þ PACAP > RACAP Market Dynam .137 .024
H6b ý PACAP > RACAP Customer Div. -.027 .654
Note: þ = hypothesis supported; ý = hypothesis rejected.
5.2.2 ‘Supplier-only’ Database
No significant effect between contractual governance and PACAP has been found (β=-0.045, p=0.530), and there was no evidence for an inverted U-shaped relationship (β=0.020, p=0.763). In addition, no significant effect between contractual governance and RACAP has been found (β=0.011, p=0.878). Hence, it can be concluded that since there is no significant evidence all of the proposed relationships, H1a, H1b and H1c, are not supported by the data.
39 significant evidence that an inverted U-shaped relationship exists between relational governance and RACAP (β=0.002, p=0.974). Accordingly, H2a and H2c are fully supported
by the data, whereas H2b and H2d are not supported.
In contrast to the findings for the buyer-only database, the interplay between relational and contractual governance shows no significance (β=0.059, p=0.501) for the supplier-only database. H3 therefore is not supported by the data.
In line with the hypotheses, a positive effect (β=0.262, p=0.003) of RSI on PACAP and a positive effect (β=0.312, p=0.000) on RACAP was found. Hence, the data found support for hypothesis H4a and H4b.
H5 is fully supported. PACAP has a very strong positive effect on RACAP (β=0.647,
p=0.000).
The proposed positive moderation effects of market dynamsism and customer diversity on the relationship between PACAP and RACAP were not supported by the data (β=-0.041, p=0.557; β=-0.051, p=0.443). Hence, the data indicate no support for H6a and H6b.
All of the hypotheses and their results have been summarized in table 13 below.
TABLE 13
Overview of hypotheses for supplier-only database
Hypothesis þ/ý Dependent Independent β P-Value
H1a ý PACAP Contractual Gov. -.045 .530
H1b ý PACAP - Quadratic .020 .763
H1c ý RACAP Contractual Gov. .011 .878
H2a þ PACAP Relational Gov. .281 .001
H2b ý PACAP - Quadratic -.034 .564
H2c þ RACAP Relational Gov. .368 .000
H2d ý RACAP - Quadratic .002 .974
H3 ý Contractual < > Relational Substitutes .059 .501
H4a þ PACAP RSI .262 .003
H4b þ RACAP RSI .312 .000
H5 þ RACAP PACAP .647 .000
H6a ý PACAP > RACAP Market Dynam -.041 .557
H6b ý PACAP > RACAP Customer Div. -.051 .443
Note: þ = hypothesis supported; ý = hypothesis rejected.
5.2.3 Conclusion Data Analysis
Based on the preceding analysis section, for the buyer-only database, hypotheses H2a, H2b,
H2c, H2d, H3, H4a, H4b H5 and H6a were statistically significant and can be accepted in favor of
the alternative. For the supplier-only database, hypotheses H2a, H2c, H4a H4b and H5 were
40 Based on these results it can be concluded that for both buyer and supplier, relational governance has a strong positive effect on both dimensions of ACAP. Contractual governance, however, turns out to be non-influential in deciding a firm’s ACAP. For the buyer, contractual and relational governance have been found to function as substitutes, whereas for the supplier, no significant result was found. RSI have a strong positive effect on the development of PACAP and RACAP for both buyer and supplier. In addition, for both sides of the dyad, an increase in PACAP leads to a significant increase in RACAP. Market dynamism strengthens this relationship, but only from a buyer-perspective. No significant influence of customer diversity was found on the relationship between PACAP and RACAP.
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6. Discussion, Implications, Limitations, and Conclusion
This chapter discusses the results from the empirical study and explains how the main findings can be related to existing literature. Subsequently, the managerial implications are proposed, after which the chapter concludes with the limitations of the study, directions for future research, and an overall conclusion.6.1 Discussion
The objective of this study was to provide an examination of the effects of governance mechanisms and RSI on a firm’s PACAP and RACAP in interfirm relationships. Although prior research suggested that contractual governance has a positive influence on a firm’s RACAP, this effect was found on the unit level (Jansen et al., 2005) and the effect on vertical, interfirm relationship remains rather unclear. In addition, both relational governance as well as RSI were not empirically tested on the different dimensions of ACAP before. The results of this study are therefore rather exploratory and add various new findings to the literature, along with several suggestions for future research.
42 In line with the expectations, the present study finds evidence that relational governance is postively related to PACAP and RACAP. Based on these findings it can be assumed that PACAP increases as a result of firms opening up and being more willing to share their knowledge, and RACAP increases because relational governance allows for more effective sharing of knowledge. Due to trust, partners are more likely to share sensitive information and are more willing to creatively and constructively cooperate (Selnes and Sallis, 2003). Furthermore, evidence was found to support a leveling-off effect in the buyer-only database (on both ACAP dimensions). Hence, for buyers, excessive levels of relational governance will be detrimental for the development of PACAP and RACAP. The difference can be explained by the different needs for buyers and suppliers for a relationship to be successful. As Ambrose et al. (2010) indicated, “the buyer needs to trust the supplier, while the supplier needs to provide credible commitments to the relationship”. In contrast with the supplier, the buyer’s need for trust (Palmatier et al., 2007) ultimately drives them to excessive levels of relational governance, resulting into the ‘hidden costs’ of trust theory from Selnes and Sallis (2003), where excessive levels of relational governance will cause partners to avoid negative and ‘difficult’ information (ibid.), opportunistic behaviour might arise (Noordhoff et al., 2011), and creativity and flexibility are lost (Dyer and Singh, 1998). An additional explanation might be, that since the supplier focuses on communication (Ambrose et al., 2010) in contrast to trust (buyer), the supplier is better able to keep profiting from the relationship when relational governance becomes more evident, considering that improved communication enhances the successful and effective absorption of external knowledge (Szulanski, 2000).
43 wants RSI (Palmatier et al., 2007) to ensure that the supplier will not behave opportunistically and use the knowledge in partnerships with their competitors (Jap, 2001). Hence, the buyer will more consciously substitute governance mechanisms considering that strategically applying both governance mechanisms can mitigate the suspicion of opportunistic behaviour for both sides of the dyad (ibid.).
In line with the expectations, RSI has a positive effect on PACAP and RACAP. Thus, investing in RSI will be beneficial for both partners, since their PACAP will benefit from the signal of commitment (Zhao and Wang, 2011; Jap, 2001) and improved sharing of knowledge made possible by RSI (Rokkan et al., 2003). Whereas their RACAP is assumed to be positively influenced by the improved efficiency thanks to RSI (Ghosh and John, 1999). In line with the findings of Jap (2001) RSI thus facilitate not only the achievement of shared competitive advantages, but also the development of interfirm ACAP.
As hypothesized and as expected from the literature, PACAP has a strong positive effect on RACAP for both databases. This finding is in line with the research of Leal-Rodriguez et al. (2014) which indicates a positive direct effect of PACAP on RACAP, and to Zahra and George’s (2002) proposed complementary but seperate roles of both dimensions. This finding might imply that in interfirm relationships, the development of PACAP should get the most attention, since RACAP will be positively affected if PACAP is high. This is in agreement with Leal-Rodriguez et al. (2013), who suggested that a high PACAP does not automatically indicate higher firm innovativeness, unless a positive influence between PACAP and RACAP exists. Accordingly, the innovation outcomes of these firms may improve (ibid.).
