COOPERATIVE ARMS-LENGTH BUYER-SUPPLIER RELATIONSHIPS, an exploratory study from the perspective of a small buyer.

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COOPERATIVE ARMS-LENGTH BUYER-SUPPLIER RELATIONSHIPS,

an exploratory study from the perspective of a small buyer.

Master Thesis, Supply Chain Management

University of Groningen, Faculty of Economics and Business

January 22, 2017 Word Count: 11690 NICOL SAALTINK s2020041 n.j.saaltink@student.rug.nl Supervisor/university J.T. van der Vaart

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ABSTRACT

Numerous studies have agreed that buyer-supplier relationships are one-dimensional and that close relationships are necessary for developing a cooperative culture. This one-dimensionality of buyer-supplier relationships is questioned in this paper as it focuses on the existence and emergence of cooperative arms-length, also called gracious, relationships. These are two-dimensional relationships whereby organizations hold each other in high regard without working together intensely. By conducting a multi-perspective survey study, it is explored whether gracious relationships exist in a context with an innovative small buyer operating in the medical device industry. Besides that, in-depth investigations of the embedded multiple-case study have highlighted under which conditions gracious relationships could emerge. The results show that attractiveness, trust, a personal relationship and effective communication could potentially contribute to the development of gracious relationships. Therefore, this study suggests that close ties are not always necessary for developing cooperative buyer-supplier relationships.

Key words: Buyer-Supplier Relationships, Small Buyer (SME), Attractiveness, Gracious

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PREFACE

Writing my master thesis would not have been possible without the support of others. First of all, I would like to thank Paul, for the opportunity to conduct research at [Focal Company] and for his valuable input during the research project.

Besides that, I would like to thank my supervisor Taco van der Vaart, for challenging me with his questions and thorough feedback. Furthermore, my gratitude goes to Damien Power for the interesting discussion on the survey data, Bart Noort for co-assessing my thesis, and Dirk Pieter Van Donk for the feedback on my preliminary research proposals. In addition, I would like to express my gratefulness to my fellow students and especially Robbert Schluter for brainstorming together and the critical view on my ideas.

The thesis could of course not have been realized without the support of the employees at [Focal Company] who were always eager to share their insights and personal judgments. Their assistance was very much appreciated and a source of motivation for me. Especially, I would like to thank Paul and Simon for their enthusiastic participation, useful suggestions and assistance in the data collection. Besides that, I would like to thank all respondents and interviewees of the involved suppliers for their effort, openness and willingness to participate.

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1.0 INTRODUCTION

Generally, companies prefer to develop close relationships with their suppliers as buyer-supplier relationships are perceived as one-dimensional, whereby close tied relationships are linked to cooperation and loose ties to competitiveness (e.g., Autry & Golicic, 2010). Yet in particular, companies that purchase in small volumes lack the purchasing power to develop close ties with the supplier and therefore have difficulty creating close cooperative relationships (Adams, Khoja & Kauffman, 2012; Mudambi, Schründer, & Mongar, 2004). However, the question is, if buyer-supplier relationships are one-dimensional and if close ties are necessary for creating a cooperative relationship. For instance, mutual attraction is important for the creation of a collaborative culture, though it does not necessarily ask for close ties. This suggests that cooperative relationships without close ties could emerge. Therefore, this paper is focused on enhancing the understanding on the development of cooperative arms-length relationships as this information could help managers with their challenge of creating cooperative relationships with their suppliers.

Cooperative arms-length relationships, also called gracious, are relationships whereby organizations hold each other in high regard without working together intensely (Kim & Choi, 2015). This relationship type suggests that close ties are not always necessary for developing cooperative relationships and that buyer-supplier relationships are based two dimensions; relational posture, connected to the affective aspect, or “how the buyer and supplier regard and behave toward each other, either as a cooperative partner or an adversary,” and relational intensity, connected to the operational aspect, or “how interlinked two parties are in their daily transactions, either closely tied or arms-length” (Kim & Choi, 2015, p. 63). The existence of gracious relationships seems partially supported in literature, as thoughts on buyer-supplier relationships, networks and strong and weak ties have become less black and white (e.g., Capaldo, 2007; Kim & Choi, 2015; Villena, Revilla, & Choi, 2011; Zhou, Zhang, Sheng, Xie, & Bao, 2014). For example, it is suggested that a supplier could become attracted by innovative buyers who provide information on preferences as knowledge resources derived from external networks improves the innovative output (Bellamy, Ghosh, & Hora, 2014; Gao, Xie, & Zhou, 2015; Phelps, 2010; Zhou & Li, 2012). These thoughts assume that despite the fact that a small buyer does not purchase in large volumes, it could become attractive to the supplier.

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also unclear under which conditions or how gracious relationships will emerge. In particular, for small buyers, it will be a challenge to achieve the threshold level of attractiveness as they often purchase in small volumes. Moreover, it is not understood if and how a high enough level of trust, which is largely developed through repeated interactions, can be achieved to support cooperation in arms-length relationships (Hald et al., 2009; Ireland & Webb, 2007). As managing supplier relationships could lead to improved competitive advantage and better operational and financial performance, information about these aspects could be of great value (Autry & Golicic, 2010; Carr & Pearson, 1999; Luo, Liu, Yang, Maksimov, & Hou, 2015; Paulraj, 2011a). For this reason, the aim of the present study is to answer the following questions:

(1) Do gracious buyer-supplier relationships exist in a context with small buyers?

And if so:

(2) Under which conditions do these gracious buyer-supplier relationships emerge?

As there is not much research conducted on gracious relationships, this research will have an explorative character. First, by conducting a multi-perspective survey study it is investigated whether gracious relationships exist. Second, an in-depth multiple case study is performed to explore under which conditions gracious relationships emerge. As this research implies the two-dimensionality of buyer-supplier relationships, it evidences a new path with new possibilities for managing supplier relationships. Therefore, it extends and enriches the strand of scientific literature on supply chain management as well as on small business management while contributing to the ongoing debate on managing relationships. Practically, this paper will enhance understanding on the development of cooperative arms-length relationships, which could help managers with their challenge of creating cooperative relationships with their suppliers.

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2.0 THEORETIC FRAMEWORK

First, it must be noted that this paper is focused on the business to business relationship between buyers and suppliers, with “relationship” meaning that the buyer and supplier do business over a period of time (Kotabe, Martin, & Domoto, 2003). More specifically, a buyer-supplier relationship is defined as “the set of practices and routines that support economic exchanges between the two firms” (Kotabe et al., 2003 p. 294). Besides that, it must be clarified that the focus of this paper is on the relationships between organizations. On one hand, it is agreed that individuals could develop personal bonds (Andersen & Kumar, 2006). However, on the other hand, it is assumed that characteristics that identify people as players are functionally equivalent to characteristics of organizational players (King, Felin, & Whetten, 2010). For this reason, relationships are studied on a company level.

To summarize, the focus of this research is chiefly on cooperative arms-length relationships between a small buyer and a supplier. To make this context clear, the importance and nature of buyer-supplier relationships and the purchasing practices of small buyers are explained in the next paragraph (2.1). After the introduction, the gracious relationship type will be discussed in terms of whether they could exist or not (2.2). Subsequently, by combining literature from different disciplines, it is investigated which conditions could potentially contribute to the development of gracious relationships (2.3).

2.1 Context and Background

A prominent driver of organizational performance1_{often cited in the purchasing and supply}

chain management literature is the capability to manage relationships (e.g. Autry & Golicic, 2010; Ramsay, 2001). More specifically, managing relationships or developing cooperative relationships with valuable suppliers, could lead to improved competitive advantage, operational and financial performance (Autry & Golicic, 2010; Carr & Pearson, 1999; Luo et al., 2015; Paulraj, 2011a). For instance, it influences the profitability of the organization as access to the latest technologies can be obtained and the structural pattern of relationships could become an inimitable resource (Capaldo, 2007; Gulati, Nohria, & Zaheer, 2000; Mudambi et al., 2004; Paulraj, 2011b).

1_{Organizational performance: “the organization’s relative competitiveness compared with other businesses and}

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2.1.1 Context: SMEs and Small Buyers

The size of the company in terms of number of employees is often used to distinguish between SMEs and large enterprises. For example, it is stated that SMEs have fewer than 250 or 500 employees (Adams et al., 2012; European Commission, 2015). In addition, it is stated that an organization is an SME when its annual turnover is between 2 and 50 million Euro (European Commission, 2015). Including the annual turnover is especially valuable in the context of the present study, as this factor distinguishes between the financial resources of organizations. However, as the focus is on small buyers, a turnover of €50 million seems high in comparison to the annual average SME turnover of €18 million (Centraal Bureau voor de Statistiek (CBS), 2015; White, 2015). For this reason, the definition of the European Commission (2015) is sharpened. In order to prevent confusion, the term small buyer instead of SME will be used in this paper to refer to: A company that has fewer than 250 employees and has an annual turnover

not exceeding €20 million2.

Strategic purchasing is recognized as relevant to all organizations, regardless of their size (Park & Krishnan, 2001). Yet it is even mentioned that small companies, in particular, are more dependent on acquiring external resources as they often lack internal ones (Pressey, Winklhofer, & Tzokas, 2009; Quayle, 2002). However, it is the purchasers in small companies that often lack interest in managing supplier relationships strategically (e.g., Ellegaard, 2006). Buying small volumes, size asymmetry, a lack of resources, time, formalization and experience are all mentioned as factors contributing to the lack of interest3_{(Adams et al., 2012; Mudambi} et al., 2004; Quayle, 2002, 2003; Thomas, Fugate, & Koukova, 2011; Wagner, Fillis, & Johansson, 2003). The most prominent shortcoming of SMEs cited in literature seems to be a lack of purchasing power (Adams et al., 2012; Bastl et al., 2013; Quayle, 2002). It seems that this shortcoming also applies to small buyers as power is context specific (Quayle, 2002). Moreover, dependence is seen as the obverse of power (Gulati & Sytch, 2007; Johnsen & Lacoste, 2016). Due to that, the stronger supplier is often able to calculate the dependencies of the weaker buyer and could utilize its power to negotiate a larger percentage of the gains (Crook & Combs, 2007; Powers & Reagan, 2007).

2_{Because 96% to 99% of the companies have been categorized as an SME, it is expected that a large number of}

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2.1.2 Background: Buyer-supplier Relationships

Relationship magnitude, defined as the degree of closeness of a relationship, is recognized as a relational basis and as antecedent to a collaborative culture (Golicic & Mentzer 2006; Thomas, Fugate & Koukova, 2011). Therefore it is argued thatthe closer a buyer-supplier relationship, the more likely that both parties are willing to proactively provide valuable information and to help each other when necessary (Cousins & Menguc, 2006; Thomas et al, 2011). For this reason, numerous studies have stated that a close relationship is necessary for creating a cooperative relationship with a supplier (e.g., Adams et al., 2012; Carr & Pearson, 1999; Golicic & Mentzer 2006; Mudambi et al., 2004). Therefore, almost all strategic sourcing initiatives intend to establish a closer buyer-supplier relationship (Rossetti & Choi, 2005).

To summarize, buyer-supplier relationships are categorized as either adversarial and at arms-length or cooperative and closely tied (e.g., Autry & Golicic, 2010). Next to that, decision and network science studies typically classify relationships as linked by either a strong or a weak tie (e.g., Capaldo, 2007). Both disciplines make roughly the same distinction and see buyer-supplier relationships as one-dimensional. Summarizing this one-dimensional distinction, it can be stated that prior buyer-supplier relationships were categorized as either adversarial; an arms-length, competitive, loose, discrete and transactional relationship, or cooperative; a tight, committed, integrated relationship with frequent interactions and/or long-term commitments (e.g., Andersen & Kumar, 2006; Autry & Golicic, 2010; Carr & Pearson, 1999; T. Y. Choi & Wu, 2009; Gao et al., 2015).

Accordingly, this consensual view on one-dimensional buyer-supplier relationships has a consequence that other disciplines, for instance, scientific theories on becoming lean, also incorporate the importance of close ties to strengthen supplier relations (e.g., Lyons, Vidamour, Jain, & Sutherland, 2011; Shah & Ward, 2007). However, it is questionable if this one-dimensional concept, developed years ago, is still the right one, and if firms need a closely tied relationship to build a cooperative one. The next section (2.2) will discuss this question in further detail.

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2.2.1 Kim and Choi (2015)

According to Kim and Choi (2015), cooperative arms-length relationships exist. They have proposed an expanded buyer-supplier relationship typology in which they have combined two specific aspects of buyer-supplier relationships: relational posture and relational intensity (Kim & Choi, 2015). As aformentioned, the dimension “relational posture” is connected to the affective aspect and the dimension “relational instensity” to the operational aspect of a relationship (Kim & Choi, 2015). From these two dimensions, four different relationship types have emerged—deep, sticky, transient and gracious (Kim & Choi, 2015) (figure 2.1). The present study is mainly focused on gracious relationships. When this relationship type is compared with a transient relationship, then it can be noted that gracious relationships have, inter elia, a higher degree of stability and relational control, and a lower degree of relational ambiguity (Kim & Choi, 2015). For this reason, a gracious relationship could be preferable to a transient relationship, when the purchased products or services become more risky or critical.

The results of the research of Kim and Choi (2015) have indicated that the two relational dimensions, relational intensity and relational posture, are orthogonal to each other. However, this conclusion is based only on a single study whereby data is collected from direct part suppliers of a large Japanese auto manufacturer4_{. Therefore, it remains uncertain whether small} buyers can develop gracious relationships with their suppliers. Moreover, conclusions drawn by Kim and Choi (2015) are based on the perceptions of suppliers and not on the perception of the buyer. This could have influenced the results as buyers and suppliers form different

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perceptions on relational aspects, for instance on the amount of control that their company has (Oosterhuis, Molleman, & van der Vaart, 2013; Roh, Whipple, & Boyer, 2013). For this reason, further research into the existence of gracious relationships is necessary.

2.2.2 Derived Ideas

Yet, the study of Kim and Choi (2015) seems to be the only study that directly states that cooperative arms-length relationships exist. Nevertheless, the results of other studies also indirectly suggest that gracious relationships could exist.

First, the dark side of close relationships is emphasized in prior studies. For instance, Villena, Revilla and Choi (2011) have stated that the harmful effects of close relationships are often underestimated; they have revealed that excessive levels of social capital5 could hurt the perfomance of the company. Therefore, they do not recommend blindly building close buyer-supplier relationships. This is one of the reasons that it is increasingly believed that a close relationship is not always the right one, even when cooperation is preferred (Autry & Griffis, 2008; Villena et al, 2011).

Second, it is also proposed that managers should not view relationship types as an “all or nothing” proposition (Autry & Griffis, 2008). Accordingly, a dual network is promoted as it enhances the level of relational capability (Capaldo, 2007). For example, it is agreed that it is beneficial to also have weak tie relationships as innovative information often arise from multiple systematic connections beyond the firm's boundaries (e.g., Autry & Griffis, 2008). In addition, it is assumed that the strengths of weak ties (exploration) counteract the weaknesses of strong ties (exploitation) (Capaldo, 2007). On one hand, this suggests that an organization needs cooperative relationships with strong ties (deep) and with looser ties (gracious). And on the other hand, it is suggested that within a single relationship, the weaknesses of strong ties could be counteracted by the strengths of loose ties. From both disciplines, the network perspective as well as relationship perspective, the contradictory nature of relationships is acknowledged. Due to that, it is expected that a cooperative relationship could be orthogonal to a closely tied relationship and an adversarial relationship to an arms-length relationship.

5_{Social capital is: “a productive resource, facilitating actions that range from an individual's occupational}

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Last, relevant studies focused on buyer-supplier relationships from the viewpoint of an SME6_{is reviewed. According to the results of the study of Mudambi, Schründer and Mongar} (2004), three different types of cooperative buyer-supplier relationships exist. In particular, the identification of the group of SMEs, named as close-but-adversarial, seems connected to the theme of the present study (Mudambi et al, 2004). This close-but-adversarial SME group seems to support the possibility that a relationship could score high on one dimension (relational posture) and low on the other dimension (relational intensity).

Due to the new thoughts from several directions, it is expected that cooperative but arms-length relationships could emerge between buyers and suppliers. To learn why and to enhance the understanding on gracious relationships, a second question is asked: Under which conditions or how do these gracious relationships emerge?

2.3 Gracious relationships: Under which conditions do they emerge?

In today’s business environment it is not uncommon that managers operate under constant time pressure (Thomas et al, 2011). Constrained time requires managers to make trade-offs (Seshadri & Shapira 2001). In addition, time pressure coping mechanisms are used to manage relationships (Thomas et al, 2011). Due to that decision bias is a consequence of time pressure, managers are more focused on buyers who seem valuable at first glance (Carter, Kaufmann & Michel, 2007; Thomas et al, 2001). However, small buyers often do not purchase in high volumes (Ellegaard, 2006; Pressey et al., 2009). Moreover, they often cannot make long-term commitments (Adams et al., 2012). So what could encourage a larger supplier to cooperate with a buyer who purchases small volumes?

When literature on cooperation between buyers and suppliers is reviewed, it can be noted that attraction is seen as the force that drives buyers and suppliers towards each other (Blau, 1964, p. 21; Hald et al., 2009; Mortensen, 2012). Moreover, the attraction of one party produces the need for this party to prove itself attractive to the other, like a motivational mechanism (Blau, 1964, p. 20). Besides that, an organization acts to receive benefits because it believes that it will be reciprocated favorably by the other organization in the future (Blau, 1964, p. 92; Hald et al., 2009; Ireland & Webb, 2007). This belief suggests that besides the requirement of attractiveness, trust is required. However, according to the social exchange theory, trust can be developed via social exchanges and interactions (Hald et al., 2009; Ireland

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& Webb, 2007). However, gracious relationships do not have frequent interactions, which complicates the development of trust (Kim & Choi, 2015). Due to these reasons, it is interesting to discover if and under which conditions attractiveness and trust will be developed in gracious relationships. For this reason, the next sections are focused on attractiveness (2.3.1) and trust (2.3.2).

2.3.1 Attraction

Prior studies into the strengths of weak ties suggests that a small buyer could become attractive when it has a high level of innovative output (Autry & Griffis, 2008; Capaldo, 2007). In addition, it is generally agreed that diversity among partners is valuable as knowledge resources derived from external networks could improve the innovative output of an organization (Bellamy et al., 2014; Gao et al., 2015; Phelps, 2010; Zhou & Li, 2012). However, it seems nearly impossible to create closely tied relationships with a large number of partners. Therefore, it can be suggested that developing multiple cooperative arms-length relationships could be beneficial for increasing the innovative output of a company. For this reason, an innovative (knowledgeable) buyer could enhance supplier attraction by providing information and offering “free assistance” to the supplier (Hald et al., 2009). Nevertheless, it is expected that not all suppliers are interested as not all suppliers are focused on innovation. Furthermore, if and how a supplier will become attracted by the innovative capability of a buyer has not been explored yet.

2.3.2 Trust

Social exchange is defined as “voluntary actions of individuals that are motivated by the returns they are expected to bring and typically do in fact bring from others” (Blau, 1964, p. 91). On one hand, power imbalance in a relationship diminishes trust and weakens the basis of a cooperative culture (Kakonen, 2014). On the other hand, through repeated interactions, contractual and competence trust could change into goodwill trust (Blau, 1964, p. 99; Ireland & Webb, 2007).

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3.0 METHODOLOGY

3.1 Research Method

To summarize, the aim of the present study is to explore: (1) if gracious relationships exist in a context with small buyers, and (2) if so, under which conditions gracious buyer-supplier relationships emerge.

Due to the different nature of the two research questions, the research design includes two research phases (Boyer & Swink, 2008; Singhal & Singhal, 2012b). First, survey data is collected from a single supply base in order to categorize relationships according to the dimensions, relational intensity and relational posture. Second, an exploratory multiple-case study is conducted to investigate gracious relationships in depth, to explore conditions and to generate new insights (Karlsson, 2009; Voss, Tsikriktsis, & Frohlich, 2002). This combination of quantitative with qualitative analysis increases the confidence in the findings (Singhal & Singhal, 2012b).

3.1.1 Phase 1: Do gracious relationships exist in a context with small buyers?

In the first phase, a survey study within a single supply base is conducted as relationships between buyers and suppliers are influenced by several different factors (Adams et al., 2012; Terpend, Tyler, Krause, & Handfield, 2008). For example, market characteristics, buying firm's characteristics and product characteristics could potentially influence relationships (Mahapatra, Das, & Narasimhan, 2012; Terpend et al., 2008). Studying a single supply base offers the possibility to gather objective background information to highlight contextual factors (Eisenhardt, 1989; Siggelkow, 2007; Yin, 2013). Due to that, studying a single supply base provides more persuasive conclusions than broad empirical research yields (Siggelkow, 2007). 3.1.2 Phase 2: Under which conditions do gracious relationships emerge?

In addition to quantitative research, a multiple-case study is conducted. The second research question is explorative in nature and complex by means of the multiple variables (Voss et al., 2002). For this reason, rich data collection methods and a flexible process that allows for the dynamism of relationships are used (Voss et al., 2002). Furthermore, as in other case studies, each relationship is investigated in its natural setting without manipulations (Meredith, 1998).

3.2 Research setting

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highlighted. However, factors making a small buyer attractive (in the context of the present study) are not known yet. Due to that, the focal company is selected based on the first thoughts on attractiveness. As aforementioned, innovativeness could possibly make a small buyer attractive (Gao et al., 2015; Zhou et al., 2014). Besides that, it is known that a high rate of innovation, called “technological turbulence,” motivates organizations to work together with their partners (Gao et al., 2015). Currently, the Medical Device Industry is characterized as a turbulent industry with a high rate of life-saving innovations (Lin & Jang, 2010; Sharma, Blank, Patel, & Stein, 2013). For this reason,

and based on observations and explorative interviews, the company as described in Appendix A and table 3.1 is selected as “focal company” or “buyer.”

3.3 Data Collection and Analysis

3.3.1 Phase 1: Data collection

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Data is collected from the supplier’s side as well as the buyer’s side as in multi-stakeholder research, the effect of single rater bias must be investigated in order to enhance the reliability of data (Roh et al., 2013). This is especially important for the present study as respondents habitually tend to underestimate the weaknesses of their own company and overestimate the amount of control that their company has (Oosterhuis et al., 2013).

Most survey questions are adapted from the survey developed by Kim and Choi (2015). Because their constructs and items have shown a high level of content validity it has served as pre-test to assess face validity (Karlsson, 2009: Frohlich, 2002). Nevertheless, multiplexity was measured with two items, of which one was context specific and therefore not useful. As for statistical reasons, three items are preferred over two items, two new items are added (table 3.3) (Field, 2009). In addition, information on demographic conditions is collected as it could illustrate influential contextual differences that might influence the relationship between the buyer and the supplier (table 3.4).

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3.3.2 Phase 1: Data analysis

The supplier-side questionnaire was completed by 63 respondents working at 56 different suppliers, resulting in a response rate of 62%. Moreover, three employees of the focal company have completed 112 questionnaires. The background of the respondents, the buyer-supplier relationships and suppliers (table 3.8) are shown on the next page.

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1977). In total, three different independent-samples T-tests were conducted (see demographic conditions in section 3.3.1). According to these tests, no statistically significant differences were detected (table 3.7).

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Second, inter-rater reliability is checked in order to assess (1) if data of a relationship evaluated by one respondent is still useful and (2) if scores of two respondents can be averaged. First, the seven relationships evaluated by two respondents of the supplier are analyzed. The inter-reliability is checked on the two-dimensional scores by using a two-way random intra-class correlation test (ICC). The average measure ICC(1.2) was .911 with a 95% confidence interval from .723 to .971 (F(13,13) = 11,249, p<.001). Second, inter-rater reliability is checked on all 56 relationships evaluated by two respondents of the buying company. The average measure ICC(1.2) was .938 with a 95% confidence interval from .909 to .957 (F(111,111) = 16,026, p<.001). From these results, it can be concluded that the data is reliable, so all surveys seem useful and scores can be averaged.

Third, questions (items) used for further analyses are selected by using two different methods. The first method consists of the same selection process as performed by Kim and Choi (2015). However, the study of Kim and Choi (2015) is conducted in a different context. Particularly, the size of the company could have an influence on the nature of relationships (see section 2.1.1). Therefore, in order to deal with the possibility that clear items and constructs in the study of Kim and Choi (2015) are cross-loaded in the present study, items and constructs are also selected by using a method derived from data gathered in the present survey. Both methods are explained in Appendix C.

The two final sets of supplier side data are used to calculate the position of the relationships along the two dimensions; relational posture and relational intensity. First, in each data base, items of constructs are averaged, resulting in one score per construct per relation. Second, the scores of the dimensions are calculated by averaging the scores of the related constructs. These scores range from 1 (adversarial) to 6 (cooperative) and 1 (arms-length) to 6 (close-tied). The final score of relational posture is depicted on the horizontal axis and of relational intensity on the vertical axis (the two axes intersect at 3.5, the midpoint). The extensions of the two dimension scores of the same relationship result in an intersection, the final location on the map.

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3.3.3 Phase 2: Case Selection

The unit of analysis of the second phase, the retrospective multiple-case study, is the buyer-supplier relationship. To achieve a better understanding on the gracious relationships type, literal replication is used, meaning that similar results are expected among the different cases (Karlsson, 2009). In order to increase generalizability and augment external validity, suppliers with different characteristics are selected (Leonard-Barton, 1990). In order to be able to select rich cases a multistep sampling process is used (table 3.9). Based on this process, a background analysis, unstructured interviews and the willingness of the supplier, three cases are selected.

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3.3.4 Phase 2: Data collection In order to increase validity, data is collected from different sources by using multiple methods (see table 3.12) (Eisenhardt, 1989; Voss et al., 2002). To enhance the understanding on each specific case, survey data (from phase 1) and data from the electronic system of the focal company

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3.3.5 Phase 2: Data Analysis

In order to enhance the understanding, data is structurally analyzed by means of coding, a method by which qualitative data is reduced into different domains and categories (Elliott & Timulak, 2005). Each case is separately analyzed, and a cross-case analysis is conducted in order to explore similarities and dissimilarities across cases (Hill, Thompson, & Williams, 1997).

First, data is divided into distinctive meaning units (quotes). These meaning units are pieces of data that contain sufficient information, even when it has been read without a context (Rennie, Phillips, & Quartaro, 1988). The usage of meaning units is comparable with the demonstration of “concepts” (Gioia, Corley, & Hamilton, 2012). Gioia, Corley and Hamilton (2012) have concluded that reporting both the voice of the informant and the researcher contributes to a qualitatively rigorous demonstration of the relation between data and concepts (Gioia et al., 2012). For this reason, meaning units/concepts as well as the underlying constructs are highlighted and used in the coding process.

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3.3.6 Rigor

According to the review of Gibbert and Ruigrok (2010), rigor criteria are often not clearly presented. Nevertheless, rigor is often important to persuade the readers (Siggelkow, 2007). For this reason, actions undertaken to increase the rigor of the present study are summarized in the table below. All actions are categorized according to the criteria of the natural science model: construct validity, internal validity, external validity and reliability (Gibbert & Ruigrok, 2010).

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4.0 ANALYSIS AND RESULTS

This paragraph provides the results of the two-stage empirical study. First, findings resulting from the multi-perspective survey study will be highlighted (4.1). Thereafter, three with-in-case analyses based on findings of the in-depth multiple case study will be presented (4.2). Subsequently, the findings of both studies are used as input for the cross-cases analysis which is presented in the fifth chapter.

4.1 Findings Survey Study

Included in this section are the results related to the first research question, “the existence of gracious relationships” and the findings of the cross-side analysis, a comparison of the buyers and the suppliers perspective.

4.1.1 Findings Survey Study: Do gracious buyer-supplier relationships exist?

According to the first method, most relationships can be categorized as gracious (46). Eight of the relationships are characterized as deep, two as transient and zero as sticky (figure 4.1).

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Besides that, when only clear items are used (method 2), 47 of the 56 relationships can be characterized as gracious, five as deep, four as transient and zero as sticky.

4.1.2 Findings Survey Study: Cross-side analysis

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Besides that, it can be noted that the buyer is more dependent on the supplier than the other way around (in 96% of the cases, see figure 4.3). However, the mean scores of “Asset Specificity” show that the buyer did not have invested more specific assets than the supplier (table 4.27, RPAS. 1,2,3,4). Nevertheless, both parties state that they have not invested much time, resources or assets, specifically in this relationship.

Comparing the scores of the items related to relational posture, it can be stated that suppliers are more willing to make sacrifices (RPC.1), have higher trust in the buyer to keep its promises (RPT.1), and value the commitment of the relationship higher (RPC.2,3). Besides that, in general, suppliers agree strongly that the other party reciprocates favors and chooses options that favor both (RPRN.2,4). Nevertheless,

both parties seem to have roughly the same experience regarding conflict resolution (RPCR.1,2,3,4).

Another remarkable finding noticed is that, according to the supplier, the information process is more informal than it is according to the buyer (RPIS.3). Moreover, whereas the supplier states that it receives proprietary information, the buyer states that it does not share much proprietary information (table 4.3).

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To conclude, the above findings highlight that, at some points, the perception of the supplier is different from the perception of the buyer. For this reason, results based on one perception should be questioned. Chapter 5 will pay attention to this discovery by questioning and discussing the results based on the supplier side data.

4.2 Results and with-in-case analysis: multiple case study

This section contains findings of the study in relation to the three cases under examination. For each case, a detailed description on the type of relationship and an analysis of specific conditions will be provided. In these analyses, meaning units, first order codes and second order codes are presented and discussed within each case.

4.2.1 Case A

As a result of the survey study, this relationship could be characterized as gracious (see point A, figure 4.48).

According to the interviewees, the interaction process was pleasant and frequent in the initial phase of the relationship (six years ago) (AB1.4, AB1.1, AS2.1: table 4.49_{). However,} data from the ERP system shows that the amount of orders and purchased

value have decreased by almost 50% in the last few years (AB1.2). Moreover, there were no specific projects in the last couple of years (AB1.5). Nevertheless, products resulting from the initial project are still purchased by the focal company. However, because there are multiple potential other suppliers, the buyer is not fully dependent on the supplier. Besides that, the supplier did not made specific process investments (AS2.2, AS2.1). Due to these reasons and the lack of recent activities, this relationship does not seem very intense.

When analyzing the dimension “relational posture,” the relationship seems trustworthy, and both companies seem to work very well together (AS1.2, AS2.3, AB1.6, AS1.3). For

8_{Dots are labeled as follows: The perspective (B = Buyer and S = Supplier) followed by the number of the}

interviewee, followed by the number of the method (as described in Appendix C )

9_{Quotes are labeled as follows: The character of the case (A.B.C), followed by the perspective (B = Buyer and S}

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instance, the supplier has agreed to take over tasks to save time for the buyer (AB1.3). Moreover, despite the fact that both companies do not communicate often, they gave (or have given) each other valuable tips (AB1.8, AB1.9, AS2.4, AS1.4, AS2.5). Furthermore, because of the pleasant and informal interaction process, they make decisions very quickly (AS1.5, AS2.6, AS2.7). So, despite the fact that there were some minor issues, both companies are collaborative and the general experience is positive (AB1.6, AS1.6, AS2.8). This results, together with the low level of relational intensity, in a gracious relationship.

Code Meaning Units Code Meaning Units

AB1.1

We have met them multiple times, at conventions and

also at their plant AS 1.2

The things that have changed (due to the projects) is that there is a lot of more trust between our companies

AS 2.1 We regularly meet them at trade shows AS 2.3 It is a trustworthy and strong relationship

AB1.2

In the beginning our volumes where higher because of the project we did back then,…, I guess the

importance of our company for S would be decreased

over the years AB1.6 It was a pleasant manner of working together

AB1.3

At a certain moment we agreed that S purchases the components by themselves, instead of that we purchase them and send it to S,…., that saves us a lot

of time AB1.7

It is no problem for them that we order in small quantities

AS 2.2

The processing is probably the same for all our customers,.., so there is no difference in the

processing site AS 1.3 We seem to work very well together AS 1.1

Not really specific arrangements. They seem to be in place for a lot of our customers. AB1.8

In particular the engineer of S, he has given us a lot of valuable tips

AB1.4

There was also a project with an additive,…,I think we have used 10 iterations to get the right mix,….,it took around half a year AB1.9

I think the learning process was in both directions, we have learned from each other

AB1.5

We didn't had any new projects in the last couple of years, we simple do not need new types of…. AS 2.4

In terms of what we can learn from B in their specific area is a big bonus for us

AS 1.4

Hopefully B is learning from us as well, but we certainly learn quite a lot from the sort of work that we are asked to do by B

AS 1.5

We are having much more a sort of informal relationship,…., thinks are done really quickly AS 2.5

It is a two-way street in terms of keeping them informed to what we are …

AS 2.6

We have a very pleasant interaction process. Very fast response times, extremely fast.

AS 2.7

We are having much more a sort of informal relationship

AS 1.6

No our relationship and as the business has developed trouble free, I think we have been going through minor technical issues. But it is very strong and very positive.

AS 2.8

Everything has been very positive with B, so we do not have any bad experiences

Table 4.4: Case A, Meaning Units related to the two dimensions of the relationship typology

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According to the first order conditions that are derived from the meaning units, this gracious relationship can be characterized as trusting and informal (table 4.5). The supplier had identified the focal company as a good starting point for growing their reputation and business. Both companies are innovative, they understand each other and value the information they receive. They learn from each other, and there is potential to grow business with new developments in the future. Because both companies do not have extensive bureaucratic processes, the interaction process is effective and decisions are made quickly. Another characteristic worth mentioning is that this relationship is a result from a face-to-face meeting at a convention and has begun with a joint project.

Case A

Domain Code Meaning Units

AS1.a As we were also a young company, the main reason was, to increase our sales

AS2.a

One thing that is really important is that they were one of our first European Customers, what was really important for our company in terms of developing out from our country in to the European market

S's Start point AS1.b We also want to get our name known in the market,…, so people talking about S supplying B

AS1.c

When other people get to know that we are doing a good job with B, we will get a good reputation

AS2.b We see B as a sort of Market Leader in the segment that they are involved in S's Reputation AB1.a

I think S has learned from us, we were combining specific materials,…, they never made these combinations before

AB1.b I think the learning process was in both directions, we have learned from each other

AB1.c In particular the engineer of S, he has given us a lot of valuable tips

AS1.d

Hopefully B is learning from us as well, but we certainly learn quite a lot from the sort of work that we are asked to do by B

AS1.e Especially someone like B, they are really in the technical field

AS2.c

They are a very good and successful medical device company,…, in terms of what we can learn from B in their specific area is a big bonus for us

AS1.f We are open to their complicated formulations of product issues, they are very important for us

AS2.d

When we start producing we did not have any customers, because of the nature of the medical device industry, you do not have access to existing businesses, because the components of the devices have been validated, so it was of big importance to get involved with companies like B

AS2.e

The perspective of going forward is really positive, part of the relationship is telling B will a kind of new technologies we are looking at in terms of material developments

Events AB1.d

At a certain moment we agreed that S purchases the components by themselves, instead of that we purchase them and send it to S,…., that saves us a lot of time

AS2.f

Meetings at the general trade shows is really important, you get a much clearer idea of what

future developments and future projects are going to involve Events

AB1.e

There was also a project with an additive,…,I think we have used 10 iterations to get the right mix,….,they were very flexible in producing small batches with only small differences

AB1.f The project with the additive took around half a year, they have helped us a lot _{Joint Projects}

AS1.g

They came to us with a problem with an additive,…, we fixed that problem for them,…, and ever since they come to us with different product issues that we solve for them

Trust AS1.h

The things that have changed (due tot the projects) is that there is a lot of more trust between our companies

Competence Trust AS1.i

Up until then S would not be aware of what we can, as we fixed a problem back than we have got more business.

AS1.j We have a trusting relationship with B _Trust

AS2.g It is a trustworthy and strong relationship

Table 4.5(a): Case A, Meaning Units and first order constructs Attractiv

eness

Two way learning process

First order code

B's innovativeness

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Subsequently, the aggregated second order conditions, indicate that the image of the buyer, the innovativeness of both companies, the knowledge exchange and the future perspective make this relationship, which has emerged from a joint project, valuable. Moreover, mutual understanding, mutual trust, the organizational structures and the interaction process make this relationship workable. These second order conditions highlight the deeper structure behind the first order conditions as they result from an intuitive multi-level investigation of similarities between the meaning units and already identified first order conditions (table 4.6).

First order code

Second order code S 's S tart point Image S 's Reputation

Two way learning process Knowledge exchange B's innovativeness Innovativeness Future perspective Future perspective Events

Joint Projects Joint projects Competence Trust Trust

Trust Face to Face Meetings Understanding Understanding Information Flow Informality Interaction Process Fast Interaction B's Organizational S tructure Organizational S tructure Table 4.6: Case A, First and Second Order Constructs

Other AS2.h

The general trade shows in Europe were we meet cements the relationship, it is really important to have face time with the customer

Face to Face Meetings AB1.g We have met them multiple times, at conventions and also at their plant

AB1.h

S was also a young company, they understand exactly what we are doing, therefore it is no

problem for them that we order in small quantities Understanding

AB1.i They understand that we need small quantities for our NPD activities,…., so it was a good match

AS1.k

We are working very well, although we work in different countries we seem to talk the same

language Information Flow

AS2.i

It is a two-way street in terms of keeping them informed to what we are planning to do with our equipment, …., what we be of interest to them going forward with their new devices

AS1.l We seem to work very well together,.., we are having much more a sort of informal relationship _Informality

AB1.j They are by phone very accessible

AB1.k

Actually, they react always very fast,…, if there was something,.., you only have to call to receive an answer

AS1.mI prefer talking to people who can actually getting things done, it is like that when talking to B Fast Interaction AS1.n

We know that every decision to be made, should be made by these people,…, they do not have to go o large meetings and then we have to wait for weeks for decision to made

AS2.j

The large companies are very slow, they have large bureaucracies,….., B would be a very reactive customer, we usually can decide what we are doing within a matter of days….

AS2.k

There is a big difference between major companies which have big bureaucracies and small flexible companies like B

AS1.o

They are quite dynamic and fast in their decision making, that is really important, it is the same like we work here

Table 4.5(b): Case A, Meaning Units and first order constructs

B's Organizational

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4.2.2 Case B

Despite the fact that both companies have had some joint projects (BB1.1, BB1.2, BB1.3), the buyer is relatively small in terms of orders and value (BS1.1, BS2.1, BS2.3). Besides that, there are also periods (e.g., first six months of 2016) in which almost no transactions have taken place (data distracted from ERP-system). To summarize, it seems that both parties benefit from the relationship, but are not

completely dependent on each other (BB1.1, BS2.1, BS2.9).

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As a result of the created first order conditions, it can be agreed that this gracious relationship consists of mutual trust, mutual understanding and shared risks (table 4.8). About three years ago, the relationship began with a first meeting at a convention. Because of the innovativeness and interest of the buyer, multiple small projects have taken place, and the supplier has predicted future possibilities. The personal relationship seems strong, and valuable information will be exchanged via a fast and effective interaction process. Moreover, the characteristics of the focal company have made the buyer valuable for the suppliers’ development process.

BS 1.1 B is quite small relatively speaking, BB1.5 I think they have tried to build it a bid on trust BS 2.1 You know revenue,.., it is not as big as some other companies BS 2.4 Trusting and Healthy

BS 2.2

I try to use email to keep things on track,…, without doing quite time consuming face to face meetings BS 2.5

I have because of the good relationship the ability to have a better sight for NPD, with a company I trust

BS 2.3

Our company have been around in Japan for 60 years, I can tell you we have over 120 dollar revenue per year BB1.6

I think it is very positive. Not only because of the quality they deliver, but just the relationship is very direct..

BB1.1

Yes if their factory burns down, we cannot produce directly,..., we probably need to spend some time to make side things and

side tools, but it is doable. BS 2.6

I have a pleasurable experience, and I just hope that B will be successful for the long term as well, I hope good things happen to good people

BB1.2

In the beginning we had an inspection every time a LOT came, at some point we have removed that inspection because now every time S supplied some data about their process BS 1.2

B is absolutely a good company to work with, and we see a future with them in terms of suppling to them for a long term, we want to maintain that relationship with them.

BB1.3

At some point we needed a new type of product, so we have asked S if they could produce it, even though they did not

release it to the market they have tried to produce it.... BS 2.7

The people I have met are very decent and fair people, who I think are well intentioned and who I want to support

BB1.4

,.., as we did not had the machines to do the tests for that, we have send our material to S, and S did a comparison and has send

us the data and information BS 2.8

I think that both companies are in very similar periods of their revolution, we are both navigating our path……….

BB1.7 I think they see a bit of themselves in us

BS 2.9

I can bring a new product to B, they evaluate the product, we get feedback, we have a much better dialogue

BB1.8

The relationship is very direct, very fast response, ... there is not a lot of back and forth

BB1.9

We do not need to follow up every 3 days if they can do something or not. We ask and they react.

BS 1.3

They will run things to make sure that we collaborate together effectively and to work well with one another

BS 2.10

..with a smaller company where you have a good relationship, that is of social value. Informality creates different channels…..

BB1.10

If you want to hear some practical examples where things go of what we expect, I haven’t seen them yet,.., I know that there was some discussing about increasing the shelf-life of the products, but that was not a reall issue

BS 1.4

I cannot not imagine that there has been a negative implication on the back of the project,…, I cannot recall any negative things at all

BS 2.11

For the most part it worked out,.., there are some situations where B lost a distributor,.., the business volumes dropped, that was disappointing, but I think S is in it for the long term

Relational Intensity Relational Posture

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Case B

Domain Code Meaning Units

BB1.a They know that we have continuously new projects ,...., we always mention that our catalogue is

expending

BS2.a Particularly closely to the 5 year point, we will celebrate both what we have accomplished,……,

win-win situation for both parties

Future Perspective BS1.a We see a future with them in terms of supplying to them for a long period of time

BS2.b The more that we got into it, the more I saw that there could be some potential

BS2.c The pricing for us is demanding, it is quite tied, so my hope would be that giving the investment we

made in B, that it will enable them to be successful and that we will enjoy that success with them

BS2.d I think as B grows and learns, then I think that will supply our company Information

BS2.e B is quite small, relatively speaking, I felt that I would get better feedback from a smaller company

like B than like……

BS2.f I have because of the good relationship the ability to have a better sight for new product

development, with a company I trust

BS2.g If B considers our new products for their new projects,…, is already a source of good feedback for us

BS2.h I can bring a new product to B, they evaluate the product, we get feedback, we have a much better _dialogue BS2.i M y hope is that they grow, in a purposeful passion and will continue to challenge us on new _{products and new needs}

BS1.b I know they are very focused on the future B's interest

BS1.c We believe that they believe in our products

BB1.b I think they see a bit of themselves in us Understanding

BS2.j I think that both companies are in very similar periods of their revolution, we are both navigating our

path...

Events BS2.k I seem to remember a first meeting with B at a confererence …..

BB1.c In the beginning we had an inspection every time a LOT came, at some point we have removed that

inspection because now every time S supplied some data about their process

Face to face meeting BB1.d At some point we needed a new type of product, so we have asked S if they could produce it, even

though they did not release it to the market they have tried to produce it....

BB1.e

We wanted to switch components, however we did not know if the components behave in the same way, as we did not had the machines to do the tests for that, we have send our material to S, and S did a comparison and has send us the data and information

Joint Project

Trust BB1.f

In the beginning they said we cannot guarantee certain properties, but we can give you the confidence that we will meet them. We cannot put it on paper, but we can show you some data to back up our results

BB1.g They said well we cannot not guarantee that every time we will meet them, but we can show that we

are very close to that S hared Risk

BS2.l In some ways it was a shared risk, B had never used that product, but is was also a risk for us, we

had given preferential pricing based on the hope that B will get more volume in the future

Other: BS2.m I base a lot of things on people, …. , yes I am a business man and responsible for profit and loss, but _{people are doing business with people} Personal Relationship BS2.n The people I have met are very decent and fair people, who I think are well intentioned and who I

want to support

BS2.o I just hope that B will be successful for the long term, I hope good things happen to good people

BB1.h We do not need to follow up every 3 days if they can do something or not. We ask and they react Fast Interaction BB1.i

To compare, with another supplier of similar products, the communication is always really slow, it seems that there are a lot of people in between the account manager and the people who doing the products

BS1.d We have opened new offices, to cover all time zones, to make sure that there is always someone to _respond BB1.j The relationship is very direct, very fast response, ... there is not a lot of back and forth

BS1.e They will run things to make sure that we collaborate together effectively and to work well with one

another

BS1.f We want to be a company easy to work with, that is one of our things we focus on, easy to do

business with

BS2.p

With a smaller company where you have a good relationship, that is of social value. Informality creates different channels and those channels could regularly communicate on a number of different things..

BS2.q I think that B, because they are small, they can move quickly, they can develop new products _{quickly, they can identify needs in the market quickly} B's company _{characteristics} Table 4.8: Case B, Meaning Units and First Order Codes

First order code

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Subsequently, second order conditions are created. These aggregated second order conditions result from an intuitive multi-level investigation. For example, it is explored that a “fast interaction process, “effective communication” and the “company characteristics of the buyer” (low level of bureaucracy) also fit within the category “interaction process” (table 4.9). To summarize the second order conditions, it can be agreed that the future perspective, the characteristics of the buyer, the innovativeness of both companies and the knowledge exchange make this relationship valuable. Moreover, the personalities of the involved people, the interaction process and the mutual understanding and trust make this relationship workable.

4.2.3. Case C

The supplier has performed different services for the buyer (CB1.4). More specifically, both involved persons worked on a project together before the two companies had a relationship (CB1.3). The buyer has mentioned that this special supplier (service provider) is above average in terms of importance (CB1.1). However, according to the supplier, the buyer is not very special to them (CS1.1,

CS1.2, CS1.8). To summarize, the supplier did not invest in specific things, and the buyer is not completely dependent on the supplier (CS1.3, CB1.2).

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In addition, the relationship seems satisfactory, and both companies trust each other (CS1.4, CS1.5, CS1.6, CB1.6). They know that maintaining the relationship could be valuable for the future (CB1.7, CB1.9). Actually, it seems that the pleasant relationship between the two companies is a result of the good working relationship between the two involved persons (CS1.8, CB1.5). Although the supplier is sometimes procrastinating tasks, both have a positive feeling about the relationship (CB1.8, CS1.10, CS1.11, CB1.6). Therefore, this relationship can be characterized as gracious.

When looking at specific conditions, it seems that both companies want to maintain the relationship because of the sunk costs and future perspective (see meaning units, table 4.11). In addition, the supplier values the company characteristics of the buyer, previous service projects have taken place and both companies trust each other in this more personal relationship. Besides

CS 1.1

We have a broad range of customers and B is not

very different from them CS 1.4

We have a good relationship, I think there is mutual trust in our relationship

CS 1.2

Also their volume, or the amount of work we have to do, B is not an outsider CS 1.5

At the start of a project, you do not know what the solution will be, B has to trust us, that we advise what is good for them,……, we have to trust B, that they will not unreasonable end the project

CB1.1

S is a special supplier,…, without doubt, in terms of importance, S is above average. CS 1.6

B is a company of which you like to say that it is your customer

CB1.2

It is possible to go to another party, however, you know, there is a big change that things will cost a lot

of time CB1.5

If our contact-person left the company and there comes someone new,……, it is possible that we go to another supplier

CS 1.3 We did not have invested specific things CB1.6 This relationship is satisfactory

CB1.3

In the beginning of our relationship we did something together for a customer of us, ……in fact we were

the contractor and S was the subcontracter CS 1.7

What we learn from B is not useful for other clients, we are not even allowed to use it

CB1.4

Previously, the have done some research for us,….., they have patented different inventions,….,

everything went very well CS 1.8

I cannot pinpoint anything special about this relationship,., they are valuable in the sense that they fit within our profile

CB1.7

Their busines model is that,…., they know that when we ask something,.., they earn a lot with maintaining patents in the future

CB1.8

Sometimes things take a very long time,…. I have the impression that certain things are postponed,…..I have my concers about that,….., but in the end, they are always on time

CB1.9

You have to understand each other very well, we are the expert explaining things, they have to translate that into…..

CS 1.9

If you write unclear applications, it will cost you more in the future,…, so we prefer to collaborate well in order to achieve directly a high quality

CS 1.10 We have no problems with the response time of B CS 1.11 I am happy with the way we communicate Table 4.10: Case C. Meaning Units related to the two dimensions of the relationship typology

COOPERATIVE ARMS-LENGTH BUYER-SUPPLIER RELATIONSHIPS, an exploratory study from the perspective of a small buyer.