VICTORIA A. HOLLDORFF June 2013

––

VICTORIA A. HOLLDORFF June 2013

U NIVERSITY OF

G RONINGEN

A ^TMOSPHERE ‘ ^S I NFLUENCE ON I NVESTMENTS IN C ^ULTURALLY D ^IVERSE

B ^UYER -S ^ELLER R ELATIONSHIPS

Relationship Atmosphere

Atmosphere‘s Influence on Investments in Culturally Diverse Buyer-Seller Relationships

by

VICTORIA A. HOLLDORFF

University of Groningen Faculty of Economics & Business

Department of Marketing MSc Marketing

Profile Marketing Management Master Thesis

June 2013

Address Gorechtkade 98

9713 CH Groningen The Netherlands +31 647 500 740

v.a.holldorff@student.rug.nl

Student number 1898086

Supervisor Hans Berger

External Supervisor Daniela Naydenova

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MANAGEMENT SUMMARY

The purpose of this study was to explore the antecedents to B2B relationship-specific investments (RSIs) as they have been found to create strategic advantages (Jap, 1999;

Munksgaard, 2010), bring about exit barriers (Leonidou et al, 2011), build unique capabilities (Barney, 1991), and have been found to enhance inter-organizational performance (Jap &

Ganesan, 2000). Therefore they are considered to be valuable, but also unavoidable for successful long-term business relationships. Thus this study assesses the impact of RSIs on positive relationship outcomes.

Furthermore, the IMP2 project conducted by the IMP Group between 1989 and 1994 offers data on international buyer-supplier relationships in which, among other aspects, the perceived atmosphere was assessed in terms of six individual dimensions: trust, commitment, cooperativeness, understanding, closeness, and power. Several studies have shown that the perceived atmosphere can have an impact on the level of unrecoverable investments, yet most have focused on the former three, whereas the latter remained rather ignored. Therefore an aim was to offer a holistic picture of which atmospheric dimensions are direct antecedents to RSIs. Finally, as investments and perceived levels of atmosphere are determined by human interactions and the IMP2 project was conducted in an international context, it is proposed that cultural distance may moderate the atmosphere-investment link and this hypothesized effect was examined in the study.

Quantitative analysis in form of structural equation modelling using a partial least squares (PLS) regression was applied to test the hypotheses and to assess the strength and direction of each proposed relationship. A sample with the size of 128 respondents was chosen for analysis. It was found that a growth in investments leads to an increase in positive relationship outcomes. Further, power imbalance and commitment are positive antecedents to investments and cultural distance does not moderate the relationship. The main contribution of this study’s findings to academic literature thus lies in showing that power imbalance has a positive influence on investments, as the commitment-investment link had been explored before.

Limitations of this study include that the interactivity between the individual dimensions of

atmosphere was ignored and all six were conceptualized as direct antecedents to investments,

which is a factor that may have caused the high correlations found between several of the

individual aspects of atmosphere. Additionally, only four of today’s six dimensions of cultural

distance (Hofstede, 2013) were used to calculate the cultural distance in international buyer-

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seller relationships. Moreover, the data is somewhat outdated having been collected 20 years ago.

It is recommended that the determinants of investments are assessed due to the findings presented above. Although both power imbalance and commitment lead to a growth in investments, which in turn leads to better relationship performance outcomes, the cause of this increasing level of investments differs: an increase in investments due to power imbalance may stem from one party forcing the other to make investments or putting exit barriers in place (which can be considered unnecessary investments), whereas an investment due to commitment has a much more positive stance. Further, this suggests that the human resources chosen to interact with the other party should be carefully selected.

Finally, further research should re-assess the links between cooperativeness, trust and

investments, as these had been identified as being significantly connected in prior research. In

this study, though they are not found to be direct antecedents to RSIs. Also, the interactive

role between all atmosphere aspects ought to be assessed. Finally, a future study should

incorporate all six of Hofstede’s cultural dimensions, as particularly differences in the long-

term versus short-term orientation of buyer and supplier could have implications for the

strength and direction in the relationship between atmosphere and investments.

iii PREFACE

Human interactions in business environments and their consequences have been of interest to me. Additionally, with a background in International Business & Management, I found it interesting to explore inter-culturally diverse buyer-seller relationships. I would like to thank Mr. Johannes Berger for the collaboration throughout the development of this thesis, as well

as the IMP Group for collecting and providing the data necessary to realize this project..

Finally, I would like to thank my friends and family for supporting me throughout my study.

July 1 ^st , 2013

Groningen

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TABLE OF CONTENTS

MANAGEMENT SUMMARY ... ii

PREFACE ... iv

INDEX OF TABLES & FIGURES ... vii

1. INTRODUCTION ...1

1.1 BACKGROUND ...1

1.2 RELEVANCE ...5

1.2.1 Theoretical Relevance ...5

1.2.2 Social Relevance ...6

1.3 PROBLEM STATEMENT & RESEARCH QUESTIONS ...6

1.3.1 Problem Statement ...6

1.3.2 Research Question ...7

1.4 STRUCTURE ...7

2. THEORETICAL FRAMEWORK...9

2.1 HYPOTHESES...9

2.1.1 Relationship-Specific Investments ...9

2.1.2 Cultural Distance ...11

2.1.3 Relationship Atmosphere ...13

2.1.4 Trust ...14

2.1.5 Understanding ...15

2.1.6 Cooperativeness ...16

2.1.7 Commitment ...17

2.1.8 Closeness ...19

2.1.9 Power ...20

2.2 CONCEPTUAL MODEL ...23

3. RESEARCH DESIGN ...24

3.1 RESEARCH METHOD ...24

3.2 SAMPLE & DATA COLLECTION ...25

3.3 PLAN OF ANALYSIS & OPERATIONALIZATION OF VARIABLES ...26

3.3.1 Relationship Atmosphere ...28

3.3.2 Cultural Distance ...28

3.3.3 RSIs & Relationship Outcomes ...29

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4. RESULTS ...31

4.1 REPRESENTATIVENESS OF SAMPLE ...31

4.2 DESCRIPTIVE STATISTICS ...31

4.3 QUALITY MEASURES ...33

4.3.1 Validity ...34

4.3.2 Reliability ...35

4.4 HYPOTHESES TESTS & RESULTS ...36

4.4.1 RSIs - Relationship Outcomes ...37

4.4.2 Relationship Atmosphere - RSIs ...38

4.4.3 Cultural Distance as Moderating Variable ...40

5. CONCLUSIONS & RECOMMENDATIONS ...42

5.1 DISCUSSION...42

5.2 LIMITATIONS ...45

5.3 RECOMMENDATIONS ...46

5.4 FURTHER RESEARCH DIRECTIONS ...47

BIBLIOGRAPHY ...49

APPENDICES ...53

APPENDIX I ...54

APPENDIX II ...56

APPENDIX III ...65

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INDEX OF TABLES & FIGURES

TABLES Chapter Page

Table I Country Culture Scores per Dimension & Variances I Chapter 3:

Research Design

29

Table II Descriptives I – Initially Construed Set of Latent Variables

Chapter 4: Results 31

Table III Country Culture Scores per Dimension & Variances II

Chapter 4: Results 32

Table IV Descriptives II – Latent Variables Chapter 4: Results 33 Table V Shapiro-Wilk Test of Normality Chapter 4: Results 33 Table VI Latent Variable Correlations Chapter 4: Results 35 Table VII R² Coefficient of Relationship Outcomes Chapter 4: Results 37 Table VIII Path Coefficients and p-values RSIs – Relationship

Outcome

Chapter 4: Results 37

Table IX R², Path Coefficients and p-values Atmosphere – RSIs

Chapter 4: Results 39

Table X Path Coefficients & p-values – Moderator Chapter 4: Results 40 Table XI Full Collinearity VIFs Chapter 4: Results 41 Table XII Reflective versus Formative Constructs – Assessment

Criteria

Appendix I 54

Table XIII Outlier Identification – Outlier Labelling Method Appendix II 58

Table XIV Outlier Assessment Appendix II 58

Table XV Indicator Weights Appendix II 60

Table XVI Combined Loadings & Cross-Loadings Appendix II 62

Table XVII Standardized Supplier Questionnaire Appendix III 65

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FIGURES Chapter Page

Figure I Conceptual Model Chapter 2: Theoretical

Framework

23

Figure II Kogut & Singh Cultural Distance Index Chapter 3: Research Design

28

Figure III Graphical Presentation of Significant Paths Chapter 4: Results 36 Figure IV Plotted Linear Relationship RSIs – Relationship

Outcomes

Chapter 4: Results 38

Figure V Plotted Significant Relationships Atmosphere – RSIs

Chapter 4: Results 39

Figure VI Distribution of Latent Constructs Appendix II 56

Figure VII Graphical Presentation of Main Results Appendix II 59

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1. INTRODUCTION

The first chapter of this report begins with a description of the background to this study. Next, the chosen topic is justified in light of its theoretical and social relevance. Subsequently, the problem statement is defined explicitly, followed by posing the study-specific research questions, which will be addressed throughout the remainder of this thesis. The chapter concludes with an overview of the structure of this report which summarizes the planned approach to solving the research problem at hand.

1.1 Background

Business–to–business (B2B) relationships are crucial to many companies, as most do not integrate all steps of their value chain into own operations and rely on buyer-supplier relationships (Samiee & Walters, 2006). Morgan & Hunt (1994) lay out ten different forms that buyer-supplier relationships may be composed of, thereby taking exchanges with a firm’s supplier and, later, buyer, and internal partnerships into account. Many forms thus exist, but they have in common that they can be labelled relational exchanges, which differ from short- term transactions and are thus meant to last long-term. Moreover, those buyer-seller

relationships (B2B relationships) are considered strategic alliances (Nielson, 1998) in which both buyer and seller receive more benefits from collaborating than if they would not work with one another.

There is a paradox in B2B relationships: ‘to be an effective competitor (in the global economy) requires one to be a trusted co-operator (in some network)’ (Morgan & Hunt, 1994). In other words, firms today must engage in relational exchanges in order to stay competitive in the market place. So, in order to attain and create a strategic advantage and attain positive relationship outcomes, one must manage these relationships (Jap, 1999).

An example of some of the positive international long-term B2B outcomes are described by Samiee & Walters (2006) as being improved anticipation of demand and market needs, which thus can benefit marketing departments’ understanding of the market place abroad.

Furthermore, from the supplier side, positive relationship outcomes include reduced inventory

costs, increased revenue, firm loyalty, enhanced understanding of the buyer, and market share

(Jap, 1999).

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Relationship-specific investments are ‘sunk, unredeployable assets in an exchange

relationship’ (Palmatier, Dant & Grewal, 2007, 177) and are thus crucial to build capabilities, which lead to positive performance outcomes according to the resource-based view (RBV) of B2B relationships (Palmatier, Dant & Grewal, 2007). Leonidou et al (2011) state that until now only scant attention has been paid academically to the relationship between adaption (which can be considered a relationship-specific investment, because adaptions often they involve investments in scarce resources which cannot be used with other business partners) and improved relationship performance.

Yet in contrast to his statement, an abundance of research has actually explored the link between RSIs and relationship outcomes: Jap (1999) has argued that relationship-specific investments (RSIs) lead to mutually favourable strategic outcomes and therefore can results in competitive advantage. Also, there is a significantly positive relationship between RSIs and profit performance. Furthermore, as mentioned earlier, the resource-based view claims that relationship-specific investments build exchange capabilities which lead to more positive relationship outcomes. In addition, it has been found by Palmatier, Dant & Grewal (2007) that leveraging the other firm’s capabilities and resources is essential to both firms’ financial performance for effective competition in the marketplace. Finally, Wong, Wilkinson &

Young (2010) state that adaptions and reconfigurations are needed to increase productivity in B2B relational exchanges.

Thus, it is of interest to explore the antecedents to the level of RSIs in B2B markets, as this topic does not seem to have been addressed sufficiently until now as most research has focused on the relationship between RSIs and performance. In the case presented here, we take a step backward and looks into what actually drives the levels of RSIs. As the human factor in buyer-seller relationships should not be neglected as interpersonal factors have been shown to have an impact on B2B outcomes (Morgan & Hunt, 1994), one could suspect that the atmosphere resulting from human interactions play a determining role.

Little research on the drivers of relationship-specific investments has been conducted to this

point: Relationship atmosphere is a multidimensional interactive construct and is a result of

the interactions in the relationship while at the same time being a factor necessary for future

developments (Hakansson, 1982). The IMP2 project of the Industrial Marketing and

Purchasing Group is the primary data source in this thesis and was designed to analyse B2B

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relationships. It chose to assess six self-defined aspects of relationship atmosphere:

cooperativeness, trust, power balance, closeness, commitment, and understanding.

Moreover, those six dimensions are connected to one another and have been found to interact, such as described in Morgan & Hunt’s (1994) commitment-trust theory, which argues that commitment is influenced by trust and both are antecedents of cooperativeness. Furthermore, Moorman, Zaltman & Deshpandé (1992) found that there was a positive causal relationship between trust and commitment, which is confirmed in different contexts by Nielson (1998) and Srivastava & Singh (2010). Some of these constructs have been studied in abundance throughout the past decades, whereas especially closeness and understanding in international B2B relationships have remained rather neglected by academic research (Nielson, 1998). As these interactions affect the level of each atmosphere construct and are helpful to understand the nature of each dimension, they are described in a later chapter in more detail.

Leonidou et al (2011) studied the antecedents of relationship investments, thereby considering the constructs of trust, commitment, communication, and cooperation as such. As such, the perceived relationship atmosphere appears to affect the level of RSIs to be invested in the international B2B relationships. Indeed, some evidence in academic literature exists as that there seems to be a link between the relationship atmosphere and relationship-specific

investments. Some studies revealed that trust leads to RSIs by customers and sellers (Nielson, 1998; Day et al, 2013). This finding is in line with the study by Leonidou et al (2011) in which the authors found that commitment and cooperativeness lead to adaption (which is considered a RSI) which in turn are both influenced by trust. These scientific findings underline that there seems to be a link between relationship atmosphere and relationship- specific investments.

Leonidou et al (2011) further found that distance between the interacting parties moderated the relationship between adaptions (RSIs) and relationship outcomes, so one could infer that distance also moderate the relationship between the dimensions of relationship atmosphere and investments.

The level of RSIs could differ when buyer and supplier are based in different home countries

from when they are based in the same country. The research conducted within this paper

focuses on antecedents of relationship-specific investments in an international B2B context,

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thereby emphasizing the supplier-side, as they have been found to have more interest in understanding buyer-supplier relationships due to higher perceptions of uncertainty (Jap, 1999), which cultural distance may contribute to when buyer and supplier are based in differing home countries (Slangen & van Tulder, 2009).

This perception of uncertainty may be overcome by investing in the relationship to increase the stability of future transactions (Jap, 1999), thereby building long-term relationships, which is why it may be managerially useful to explore whether cultural distance affects the link between, e.g. trust and relationship-specific investments. Culture, which is defined as ‘the collective programming of the mind which distinguishes the members of one human group from one another’ (Hofstede, 1980, 21) can act as a barrier to international business

relationships (Barkema, Bell & Pennings, 1996) and cultural distance, which is a measure of how similar or different two cultures are from another, ‘[…] (has) implications for the organization of international supply chains’ (Samiee & Walters, 2006, 589). It has been shown that distance affects the entry mode choice of firms and the level of foreign direct investment (FDI) (Barkema, Bell & Pennings, 1996). On the other hand, the study conducted by Slangen & van Tulder (2009) revealed that cultural distance did not have an effect on entry mode choice, which implies that the impact of cultural distance on investments should be re- assessed. If the firm has already entered the market, does distance have an effect on the scope of further investments in the relationship as well?

Jap & Ganesan (2000) have analysed the role of RSIs in the relationship life cycle and have found that RSIs can act as safeguards in uncertain and thus riskier relationships. It could be of interest to see whether (1) cultural distance leads to an increase in RSIs which need to be invested in the business-supplier relationship to make it work; or if (2) larger cultural distance means that less relationship-specific investments are made due to uncertainty this distance creates, which would mean that investments would be of a risky nature and therefore the partners would be more reluctant to invest.

Summarizing, it is assumed that RSIs lead to enhanced business performance (Leonidou et al)

which are influenced directly by dimensions of relationship atmosphere. An objective of the

report is to explore in more detail which dimensions influence RSIs directly, and whether this

link is affected by cultural distance.

5 1.2 Relevance

There are several reasons to believe that conducting the earlier described study could be theoretically and socially relevant. These are laid out in the subsequent paragraphs.

1.2.1 Theoretical Relevance

Williamson (1975) pointed out that transactional problems arise from the combination of human and environmental factors, which is why it is often important to study them in combination. The dimensions of relationship atmosphere are characterized as being influenced by human factors, whereas cultural distance is thought to be an environmental factor that causes uncertainty and may have an influence on the effort put into maintaining a relationship. As the study is conducted in an international context, it is interesting to assess what effects cultural distance could have on relationship-specific investments to lead to more positive outcomes; and whether culturally distanced business relationships are in need for higher relationship-specific investments or in reality invest less, due to the uncertainty caused by cultural distance.

Studies have largely focused on describing the impact of two or maybe three dimensions of relationship atmosphere on various dependent variables and have neglected to study all six (as put forth and enabled by the IMP2 project) in context with relationship-specific investments.

This is confirmed by Wong, Wilkinson & Young (2010) who state that research up to this point has limited itself largely to exploring the links between the individual dimensions of atmosphere than considering its entire construct.

Moreover, most emphasis has been on the constructs of trust, commitment, and cooperativeness. Thus, there appears to be a research gap concerning the role of

understanding, closeness, and power in international B2B relationships. This implies that because not all of the proposed relationships have been studied, inferences from other findings which could indicate the strength and direction of the links are necessary.

Studying which of the dimensions of relationship atmosphere may influence relationship- specific investments significantly is of theoretical relevance as it helps understand how to these dimensions are linked to enhancing relationship performance. This makes investments in relationship atmosphere indirectly financially accountable and would highlight the

importance of maintaining a mutually satisfactory relationship atmosphere once more.

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Summarizing, the aim of this thesis is two-fold: (1) to analyse the relationship between the individual dimensions of relationship atmosphere and relationship-specific investments, and (2) to see whether this relationship is affected by cultural distance. To my knowledge, none of the research has been conducted yet in this context and could not be found in recent relevant literature.

1.2.2 Social Relevance

The social impact of addressing the research topic is that it firstly allows managerially relevant insights into how to manage international B2B relationships and how to allocate relationship-specific investments across various buyer-seller relationships. There has not been much academic attention paid to analysing a ‘firm’s entire or complete supply chain, that is, the linkage between a supplier, its intermediary, and the intermediary’s customer’ (Samiee &

Walters, 2006, 589). Therefore, a need arises to investigate how to manage these relationships which is needed to build meaningful long-term relationships that are crucial to create a

strategic advantage and attain positive relationship outcomes (Jap, 1999).

Secondly, as the dimensions of relationship atmosphere are influenced by human factors, social influences are explored, which thus contribute to the field of social research.

1.3 Problem Statement & Research Questions

The purpose of this study is finding answers to the described problems presented by research gaps and these are based on the following problem statement and the research questions which are derived from the situation described above.

1.3.1 Problem Statement

It has been shown that three of the six dimensions of relationship atmosphere, which are among other factors influenced by human interactions, have a direct effect on the level of RSIs in buyer-seller exchanges (i.e. commitment, cooperativeness and trust in studies by Day et al (2013), Palmatier et al (2013), Leonidou et al (2011), and Nielson (1998)). No study thus far has included all dimensions of relationship atmosphere in this context by neglecting understanding, power, and closeness.

Cultural distance has shown to cause an increased level of perceived uncertainty which affects

the amount of relationship-specific investments devoted to build exchange capabilities for

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more positive relationship outcomes in international B2B markets. Therefore, culture has an impact on investments (Fletcher & Fang, 2006) and should be included as an environmental factor in studies involving international contexts.

1.3.2 Research Questions

The main and rather broad research question of this study is which of the dimensions of relationship atmosphere has an effect on the level of RSIs in international B2B relationships?

In order to systematically answer the main question and at the same time includes all the earlier described study relevant elements, it is divided into the following set of sub-questions:

(1) How do relationship-specific investments affect the overall relationship performance?

(2) How does relationship atmosphere impact on relationship-specific investments?

a. How and to what extent does trust affect the level of RSIs?

b. How and to what extent does understanding affect the level of RSIs?

c. How and to what extent does cooperativeness affect the level of RSIs?

d. How and to what extent does commitment affect the level of RSIs?

e. How and to what extent does closeness affect the level of RSIs?

f. How and to what extent does power imbalance affect the level of RSIs?

(3) Does cultural distance affect the link between relationship atmosphere and RSIs?

It should be noted that the last sub-question proposes that cultural distance takes a moderating role in this framework as it is assumed that distance between partners can strengthen/weaken the impact of the atmosphere on investments.

1.4 Structure

After clarifying the motivation concerning the theme of this research project, the remaining

structure of this academic paper is as follows: First, the research topic will be explored in

more detail and grounded in theory, whereby the theoretical framework is laid out in the

second chapter. This results in a detailed illustration of the conceptual framework using

opinions, concepts, and theories from relevant academic journals and management books to

justify and describe the proposed relationships between the variables. Based on those findings

from academic literature, the hypotheses are defined, which are tested in later chapters of this

thesis.

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Secondly, the research design is described in chapter three. This chapter includes a portrayal of the research methods conducted, as well as an illustration of the sample and the data

collection method. Moreover, the plan of analysis is laid out, which is reasonably based on the nature of the variables used.

In chapter four, the results of the statistically conducted hypotheses tests are presented. Prior to that though, the representativeness of the sample is assessed. Further, as it is typical for academic research to evaluate the quality of the measuring instruments by looking at the reliability and validity of the tests, these will also be addressed in this chapter. Following, the hypotheses test results are shown and clarified.

Finally, the study is rounded up by drawing conclusions from the findings aimed at answering

research questions posed in chapter one. Furthermore, some limitations to this study are

explained, recommendations and implications are given for management are shown and

directions for further research are proposed.

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2. THEORETICAL FRAMEWORK 2.1 Hypotheses

In this chapter, first the constructs of RSIs, performance outcomes, cultural distance, and relationship atmosphere are explained as they are the major elements of this study, and the various hypotheses are derived for each proposed link. Further, in order to analyse the proposed relationships in a clear and systematic way, it is most convenient to address each research question individually. As aforementioned, the aim is to offer a holistic picture of the types of the dimensions of relationship atmosphere that directly determine the level of

relationship-specific investments in international B2B relationships. The effective way chosen to solve this question is to pose two sub-questions for each independent variable: (1) how does the dimension affect RSIs and (2) do cultural differences affect the link between relationship atmosphere and RSIs?

2.1.1 Relationship-Specific Investments (RSIs)

‘RSIs’ are one of the main constructs in this study, and they are one of the two dependent variables. It should be noted that the term adaptions, investments, and exit costs are used interchangeably here for RSIs.

According to Gadde (2004) today’s B2B relationships are becoming more interdependent and firms rely increasingly on shared resources. Relationship-specific investments are sunk costs, or ‘refer to the adaptions in products and plant equipment that are dedicated to one degree or another, to the customer partner’ (Nielson, 1998, 452). This definition is a bit narrow though, as a larger variety of investments can be classified as relationship-specific investments, which can be soft (intangible and/or small monetary investments) or hard (tangible and/or investing large amounts of resources), as well as formal (contractual) or informal (non-contractual, e.g.

due to unexpected problems) (Leonidou et al, 2011; Jap, 1999). Two broad categories appear to encompass all types of relationship-specific resources: physical and technical resources (Hakansson & Waluszewski, 2002). They thus not necessarily need to be of monetary nature and further are considered inter-firm assets invested in for the relationship.

RSIs are important to firms in that they create strategic advantages (Day, 1999; Munksgaard,

2010), create exit barriers (Leonidou et al, 2011), build unique capabilities (RBV), and

enhance inter-organizational coordination (Jap & Ganesan, 2000). The next paragraphs

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elaborate some more on these four reasons explaining why RSIs appear to be highly important and highlight the necessity to study their antecedents.

High levels of RSIs appear to have some advantages: they are considered being highly important in B2B relationships (Leonidou et al, 2011) because they e.g. create exit barriers as they are considered to be sunk costs (nonfungible investments) which none of the parties can retrieve once the relationship is terminated (Williamson, 1975; Williamson, 1985). Also, they are needed to support the efforts of both buyer and seller to create strategic advantages (Jap, 1999; Munksgaard, 2010), which can enhance both firms’ profit potential more than if both were working without one another. Jap (1999) further argues that RSIs are needed to move away from ‘arm’s-length’ exchanges which do not add significant value to the firm. Another advantage is that they enhance inter-organizational coordination and increase a supplier’s manifestation in the end market (Jap & Ganesan, 2000). Moreover, Palmatier et al (2013) find that those types of investments become more important in the long-run whereas atmosphere constructs, such as trust and commitment, lose some of their initial relevance. Gadde (2004) actually states that positive relationship outcomes are determined by shared resources. Finally, the RBV argues that RSIs are needed to build unique exchange capabilities for more positive relationship outcomes. Therefore, and in line of thought with the RBV:

H ₁ : RSIs have a positive causal relationship with performance outcomes

On the other hand a consequence of increased investments is that the higher the relationship- specific investments are, the more closely partners are assumed to collaborate and therefore, the exposure to opportunism is considered to be higher and bargaining power lower than in non-collaborative exchanges (Jap, 1999). Furthermore, some relationships are adversarial, and therefore asymmetric, in which e.g. the supplier has more power and requires the buyer to make large RSIs, thereby locking in the buyer and creating potential for perceived uncertainty from his side, while at the same time being an affirmative sign for the supplier (Jap &

Ganesan, 2000). One control mechanism that buyers can use to decrease their uncertainty in

such a case is to require that the supplier makes investments as well (Anderson & Weitz,

1992). High levels of RSIs should therefore not be seen as a completely positive attribute of

B2B relationships, as the parties might be forced to have larger-than-necessary investments in

the relationship.

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RSIs here are not measured as actual investments made, but are evaluations of the perceived level of investments made. This perception may be biased, which should be kept in mind, as it depends on the knowledge, attitudes, and perceptions of the respondent (Mason & Leek, 2010). Furthermore, the level may vary depending on the length of the relationship (Leonidou et al, 2011) as relationships in the early stages of the relationship life cycle probably have not engaged in heavy investments at that point of time. Also, as the duration of the relationship increases so does the exposure to changing environmental demands, which is why an

increasing amount of RSIs are needed to deal with the changing market environment (Porter, 1985).

Leonidou et al (2011) conducted an international study on the factors driving relationship adaptions as they lead to enhanced relationship performance, which in turn is profit generating. The authors found that the effectiveness and efficiency due to adaptions was moderated by the level of dependence and distance, once could infer that cultural distance would also play a role on the link between the factors driving RSIs and RSIs, as this distance is a source of uncertainty for both parties in the relational exchange. The concept of cultural distance is discussed further in the next section.

2.1.2 Cultural Distance

Culture appears to have a significant impact on relationships (Fletcher & Fang, 2006; Hewett, Money & Sharma, 2006) and therefore should be included in studies of international scope.

Samiee & Walters (2006) proposed that cultural distance actually would have a negative effect on trust, commitment, and relationship performance. Some researchers have followed this line of thought Hewett, Money & Sharma (2006) studied the moderating role of culture on the bond between the strength of the relationship and repurchase intentions in buyer-seller dyads, yet here, cultural distance is proposed to moderate the relationship between the

perceived relationship atmosphere and perceived investments for several reasons. Firstly, culture is significant in relationships (Fletcher & Fang, 2006; Hewett et al, 2006), secondly, it causes uncertainty (e.g. Slangen & van Tulder, 2009), and thirdly, it has an impact on

investments (Fletcher & Fang, 2006). These arguments are elaborated on in the subsequent paragraphs.

The construct of culture is adapted from Hofstede’s (1980) work on the cultural dimensions

and thereby an etic (culture-general) approach is taken in this report. Four dimensions have

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been chosen to compare each national culture, namely power distance (PDI), uncertainty avoidance (UAI), individualism versus collectivism (IDV), and masculinity versus femininity (MAS). The scores that are assigned to each country in this study gets are based on his work and are taken solely from his website. As cultural distance is the concept to be measured in this paper the Kogut & Singh index based on Hofstede’s scores is an appropriate tool for calculating and operationalizing the variable. Cultural differences are thus considered to be the equivalent to the cultural distance score calculated and both terms are used

interchangeably throughout this report.

Fletcher & Fang (2006) have stated that there is a need for management to understand how culture has an impact on the buyer-supplier relationship, as it (1) has an influence on which partnerships to form, and (2) an influence on the importance of the relationship to a firm.

Further, Samiee & Walters (2006) point out that cultural variance may increase the level of misunderstandings. These cultural issues may arise in the internal as well as the external environment firms find themselves in. Jap (1999) studied whether the environment would have an effect on relationship-specific investments and found that environmental factors facilitated the creation of RSIs for both buyers and suppliers. A further finding was that when uncertainty in the environment exists, suppliers are more willing than buyers to devote assets to relationship-specific investments, though both have the tendency to devote the needed RSIs to enhance decision processes and build capabilities. As cultural distance causes uncertainty (e.g. Slangen & van Tulder, 2009) suppliers would be willing to bind the buyer to them by increasing the level of RSIs.

It follows from other discussions that it is not clear that high cultural distance results in (1) higher relationship-specific investments to overcome distance, or, on the other hand, (2) lower RSIs due to uncertainty. Whereas the studies from Jap (1999) and Slangen & van Tulder (2009) are supportive arguments for the former, Leonidou et al (2011) support the latter, in that they state that ‘distance makes participants in the relationship feel reluctant to undertake significant adaptions’ (p.529). In any case though, an (indirect) influence of distance on the level of RSIs is expected to exist as pointed out by Fletcher & Fang (2006) in that culture appears to have an impact on adaptation in cross-country contexts.

Furthermore, it has been suggested that the longer firms remain in relationships with the firms

of the same culture, the less impact cultural barriers appear to have on performance, due to the

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effects of organizational learning (Barkema, Bell & Pennings, 1996). If the cultures are largely distant from another, this has an impact on organizational learning though (Barkema, Bell & Pennings, 1996), which in turn causes uncertainty.

For all the reasons mentioned above, there is a possibility that cultural distance could have a different role in each of the proposed relationships in this study. Therefore, the hypothesized strength and direction of the relationship between the individual dimensions of atmosphere and RSIs (caused by distance) could differ from one another. The individual dimensions of relationship atmosphere are elaborated in more detail in the next section.

2.1.3 Relationship Atmosphere

Overall, there has been a shift from short-term arm’s length exchanges to more long-term collaborative exchanges, and Gadde (2004) argues that relationship atmosphere then becomes a determinant to more positive relationship outcomes. In the IMP2 Project, six dimensions of relationship atmosphere, which is therefore a multidimensional construct, were brought forward: trust, understanding, cooperativeness, commitment, closeness, and power.

Leonidou et al (2011) found that commitment directly affects the level of investments and Nielson (1998) found support for his claim that trust determines the level of relationship- specific adaptions. Therefore, one could assume that other dimensions of relationship atmosphere have an effect on the level of RSIs as well. When viewing the total construct of atmosphere Wong, Wilkinson & Young (2010) have argued that ‘interactions over time in relations lead to mutual adaptions taking place in all these dimensions, which results in […]

the way investment and adaption in resources is relationship specific’ (p.722). This is in line with Munksgaard’s (2010) assumption that the interaction is regarded as the result of

interdependent partners adapting their resources to one another. Here, it is proposed that the adaption of resources also depends on the relationship atmosphere formed through

interactions. That is, the partners decide to pursue different levels of investments due to differing strategic options resulting from perceptions of atmosphere and thus evaluations of the importance of the relationship.

Each of the individual dimensions of relationship atmosphere is assumed to be causally linked

with investments for the reasons explained in the subsequent paragraphs.

14 2.1.4 Trust

Trust is the ‘confidence in an exchange partner’s reliability and integrity’ (Morgan & Hunt, 1994, 23) or ‘refers to the supplier’s perception that the customer will perform as promised in the relationship with honesty and integrity’ (Nielson, 1998, 452). Jap’s (1999) study assumed that trust in B2B relationships would reduce (the exposure to) opportunistic behaviour for both parties. This is the same line of thought as has been brought forth by Morgan & Hunt’s (1994) commitment-trust theory, which basically assumes that if trust and commitment are present both parties believe that the other will not behave opportunistically. Furthermore, they found that the presence of trust increases the probability of long-term relationship preservation and that both partners trust another to act in the other’s best interests. Further, Cater & Cater (2010) found that trust influences commitment. Finally, the Palmatier et al (2013) study, focusing on the construct of commitment velocity (which is basically the change of commitment throughout a relationship) found that it is a factor that influences commitment velocity, as well as RSIs. Therefore, it is assumed that those constructs are connected.

Trust and RSIs. Thus far, several studies (Leonidou et al, 2011; Jap, 1999; Srivastavan &

Singh, 2010) have confirmed a link between trust and investments, yet in other contexts. In Srivastava & Singh’s (2010) study, it is pointed out that trust allows that partners are more willing to share information with one another and Leonidou et al (2011) found that trust is indeed a factor that drives adaption, yet indirectly. In their study, it was an antecedent of commitment, as well as cooperation, which both influenced investments positively. As trust facilitates believing that the exchange partner will continue to remain in the relationship for a longer period of time than if the opposite would be true, it can be inferred that this increases the willingness to invest. Indeed, Nielson (1998) studied trust as an antecedent to relationship- specific investments, and found support for a positive causal link. This would also be in line with what Day et al (2013) call inappropriate trust and negative performance outcomes, in which they find that high levels of trust can actually lead to high investments being made, which would have not been necessary. Further, Dietz, Skinner & Weibel (2011) call this phenomenon in which trust is misplaced the dark side of trust.

There is evidence that the trust-investments link would be of positive rather than of negative

nature: Jap (1999) studied whether trust would facilitate relationship-specific investments and

found no support for this relationship. The study anticipated that trust would decrease

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opportunistic behaviour. As it was expected that high levels of RSIs would increase exposure to opportunism, this line of thought argued for a negative causal relationship between trust and RSIs, which was not confirmed. Unless it is found that there is no relationship between trust and investments, one can thus infer that:

H ₂ (a): Trust in a B2B relationship has a positive causal relationship with the level of RSIs.

Trust and Cultural Distance. In international relational exchanges, where uncertainty due to distance may be present, exchange partners may need to lock in one another by forcing each other to make RSIs (Jap & Ganesan, 2000). Yet if trust is largely present, then this heightened level may be decreased as there is no need to lock-in the other partner due to trusting that he will act in the other’s best interest (Morgan & Hunt, 1994). Nielson (1998) reaffirms this claim by stating that in such cases, both parties tend to ‘refrain from the use of power or exploiting changed circumstances to obtain individual benefit’ (p.445). Further, he claims that uncertainty may decrease the level of trust ‘associated with becoming […] invested in the consumer’ (Nielson, 1998, 456). Samiee & Walters (2006) also state that trust is especially important when uncertainty exists within the environment and propose that cultural distance negatively influences trust and relationship performance.

So, partners with high cultural distance appear to have more difficulties establishing trust and thus trust one another less, due to that distance causing uncertainty. Hence, cultural distance generally appears to have a negative effect on trust. Day et al (2013) point out that in fact, relationships that are highly vulnerable and of uncertain nature have more difficulties building high levels of trust. Further, one could argue that two differing relationships are characterized by the same levels of trust, the culturally more distant relationship would have less

relationship-specific assets invested.

H 2 (b): Cultural distance negatively affects the link between trust and the level of RSIs.

2.1.5 Understanding

Understanding in a relationship is said to be present when firms are keen to understand the

other’s situation (Wong, Wilkinson & Young, 2010). This implies that both partners take a

conflict-reducing stance by not strongly reacting to short-term negative fluctuations

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throughout the term of the relationship. Unfortunately, this dimension of relationship atmosphere has remained rather neglected in B2B research and therefore, in which respect understanding interacts with the other dimensions is not easily determined.

Understanding and RSIs. In line with the definition of understanding provided above, one could infer that the more understanding partners are of one another, the more willing they are to invest in the relationship. Both parties would appear to be more prone to follow a long-term orientation as they would have the ability to accept short-term negative terms during the duration of the relationship. This would lead to an increasing level of substantive relationship- specific investments to overcome the other partners’ difficulties. Gadde (2004) points out in which cases a high level of understanding apparently can be advantageous to partners: firms may strengthen their relationship if they feel that the partner’s activity is complementary to theirs, which requires some form of understanding of the other’s actions.

H 3 (a): Understanding and the level of RSIs are positively associated

Understanding and Cultural Distance. Samiee & Walters (2006) indicate that more

compatible and therefore similar, cultures would lead to more positive relationship outcomes.

Understanding in more culturally distant relationships therefore appears to be more difficult to achieve, and suppliers may be less willing to invest in the relationship when they do not understand their partner’s intentions as well due to uncertainty cause by cultural distance.

This would lead to growth in investments that is below its potential.

H ₃ (b): Cultural Distance has a negative effect on the understanding-RSI link.

2.1.6 Cooperativeness

Cooperativeness is described as the ‘willingness to work together and achieve each other’s goals’ (Wong, Wilkinson & Young, 2010, 722). In comparison to arm’s length relationships, today’s B2B relational exchanges are characterised largely by cooperativeness (Gadde, 2004).

The interaction between trust, commitment, and cooperativeness seems to be mutually

reinforcing, as Cater & Cater (2010) found that cooperation and trust both influence the level

of commitment, whereas Morgan & Hunt (1994) argued that commitment and trust both need

to be present for cooperative relationships and thereby posit that cooperativeness is a result of

both. Also, Day et al (2012) stress trust’s importance to improve cooperativeness from

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findings in Palmatier et al (2007). Therefore, one can assume that if levels of commitment and trust are high, cooperativeness levels would be high as well.

Cooperativeness and RSIs. According to Leonidou et al (2011) cooperativeness has been found to lead to adaptions. This appears to be a logical conclusion, as the more willing people are to cooperate with one another, the more willing they are to invest in the relationship. It is in line with Munksgaard’s (2010) assumption that cooperativeness reflects how partners both can increase the value of the relationship. Also, Gadde (2004) points out that inter-firm relationships require higher levels of cooperation, which makes the resources of both parties become more integrated. Therefore, cooperativeness and investments seem to go hand in hand - when levels of cooperativeness are high, it is therefore expected that RSIs increase as well.

H 4 (a): Cooperativeness and RSIs are positively associated.

Cooperativeness and Cultural Distance. If two differing relationships are characterized by the same level of cooperation, one could assume, that those that are less distant, and therefore less exposed to uncertainty, would be willing to invest more.

H 4 (b): Cultural distance has a negative impact on the cooperativeness-investment relationship.

2.1.7 Commitment

Commitment is conceptualized as ‘an enduring desire to maintain a valued relationship’

(Moorman, Zaltman & Deshpandé, 1992, 316). In other words, it is defined as the party’s expectation that the relationship will last in the future (Nielson, 1998). This definition is in line with Morgan & Hunt’s (1994) commitment-trust theory, who found that the presence of commitment increases the probability of long-term relationship preservation, and define commitment as ‘an exchange partner believing that an on-going relationship with another is so important as to warrant maximum efforts at maintaining it; that is, the committed party believes the relationship is worth working on to ensure that it endures indefinitely’ (p.23).

Commitment is according to Palmatier et al (2006) probably the most important dimension of

relationship atmosphere that leads to positive performance outcomes. Palmatier et al’s (2013)

study on commitment velocity, stated that commitment velocity directly affects performance,

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and thus the more long-term the relationship is, the larger its chances to result in more positive outcomes.

Commitment and RSIs. Some evidence for a positive causal relationship between

commitment and RSIs can be found in academic literature: Morgan & Hunt (1994) argue that commitment is an antecedent to positive relationship outcomes, which they build on the basis of Berry & Parasuman’s (1991) finding that it is central to build successful long-term

relationships. As RSIs are a prerequisite for long-term positive outcomes (according to the RBV), it could be argued that commitment may also influence the level of RSIs. More specifically, according to Crotts & Turner (1999) it is central for continuing the relationship.

Also, it has been shown that commitment to the relationship has a positive effect on

motivation to maintain the relationship (Crotts & Turner, 1999; Moorman et al, 1992; Morgan

& Hunt, 1994). This motivation is understood to also play part in investing in the relationship to maintain it further, which would mean that motivation to maintain the relationship

motivates parties for a growth in RSIs on both sides. Indeed, Leonidou et al (2011) found that commitment does directly affect adaption and Cater & Cater (2010) found a significant link between commitment and adaptions as well.

Other research has argued that perceived commitment mediates the relationship between RSIs and outcomes, and is a result of RSIs (Jap & Ganesan, 2000; Morgan & Hunt, 1994). Jap &

Ganesan (2000) found that supplier’s RSIs increase perceptions of commitment. It could be inferred, that this in turn could induce the parties to engage in higher RSIs, as RSIs are ‘a powerful signal of the supplier’s long-term commitment intentions’ (Jap & Ganesan, 2000, 241). Therefore, it appears that RSIs and commitment are mutually reinforcing, as in that commitment leads to adaptions, which in turn increases commitment.

H ₅ (a): Commitment is positively associated with RSIs.

Commitment and Cultural Distance. Both the studies of Jap & Ganesan (2000) and Morgan

& Hunt (1994) showed that commitment is one of the results of RSIs. As RSIs are sunk costs, they represent a safeguard against uncertainty in the relationship. Leonidou et al (2011) found that commitment may also lead to RSIs, so that this relationship is assumed to be positive. As distance causes uncertainty though, and thus calls for higher RSIs, the link between

commitment and RSIs may increase. Further, if two relationships with the same level of

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perceived commitment are compared to one another, one could assume that the relationship in which partners are more distant from one another would result in less willingness to invest in any long-term binding activity. Indeed, Samiee & Walters (2006) proposed that cultural distance would negatively affect commitment and relationship performance.

H ₅ (b): Cultural distance decreases the positive causal relationship between commitment and RSIs

2.1.8 Closeness aka Connectedness

Closeness is conceptualized in Nielson’s (1998) study as ‘extensive person-to-person contact by numerous functional participants from each firm that results in close personal and working relationships’. Jaworski & Kohli (1993) chose to call it connectedness and define it as ‘the degree of formal and informal direct contact among’ people (p.56). The concept of closeness, although it has been recognized as an important part of buyer-seller relationship, has not been explored in great detail by many studies (Nielson, 1998). In Jaworski & Kohli’s (1993) study for example, they focus on interdepartmental closeness between intra-firm units and position connectedness as a significant antecedent to a market orientation (which in turn leads to more successful performance outcomes).

In terms of its interaction with other dimensions, Srivastava & Singh (2010) studied the antecedents and results of closeness and found that trust and commitment represent

antecedents to closeness, which may result in increased customer value. The concept of RSIs was not present in this study, which is why exploring closeness’ function as an antecedent to RSIs should be studied. Especially, as Srivastava & Singh (2010) point out that closeness can result in enhanced product innovation and design, cost reductions, and increased levels of quality; therefore, it should be a crucial part for successful and meaningful strategic alliances.

Closeness and RSIs. Closeness facilitates the level of interaction and the amount of shared

information (Jaworski & Kohli, 1993) and one can infer that partners would be willing to

invest in the relationship when such a setting is provided. Some studies have considered

closeness to be one of the consequences of inter-relationship investments: Nielson (1998)

found support for his hypothesis that relationship-specific investments would positively

influence perceptions of closeness. It is argued here, that this relationship also may be

mutually reinforcing, as higher levels of RSIs may be a result of a close and intimate

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relationships, so that these lead to a desire to continue the relationship. Further, Munksgaard (2010) claims that perceived closeness ‘may also help actors overlook or set aside their own interests in the quest for seeking joint goals, in spite of current incompatibility in resources’

(p.939). In other words, when closeness increases, the level of RSIs is expected to show signs of growth. What should be noted though is that closeness is influenced by the level of trust, and much personnel, effort, and time must be dedicated to establish closeness (Nielson, 1998).

Hence, young relationships are expected to exhibit lower levels of closeness than more established ones do, as it would make sense that as relationships become more mature, firms are willing to devote more assets to maintain and enhance collaboration.

H 6 (a): Closeness has a positive influence on relationship-specific investments

Closeness and Cultural Distance It is important to note here, that closeness and distance are not actually meant to be opposites from another here, but are levels of differing constructs.

Whereas closeness refers to the close interaction between individuals in this case (social closeness, actors with close ties in a network), distances in culture imply that groups with differing ‘collective programming of the minds’ (Hofstede, 1980) must deal with one another, and are thus environmental conditions. In other words, it is possible for partners to be close to one another while remaining culturally distant. Srivastava & Singh (2010) point out that fruitful relationships occur when social distance is minimal, hence: here, it is argued that partners of two differing cultures should have more difficulties becoming close to one

another, and hence, that cultural distance negatively influences the link between closeness and RSIs.

H ₆ (b): Cultural distance has a negative effect on the link between closeness and relationship-specific investments.

2.1.9 Power

Power balance can be described as the extent and distribution of dependence of one partner on

another (Gaski, 1984; Henneberg et al, 2006) or the ‘ability to influence the other person in

the relationship to achieve a desired end, or to effectively resist unwanted influence’ (Oyamot

et al, 2010). Generally, the concept of power appears to be of more hostile nature than the

other five dimensions of relationship atmosphere, but nevertheless is significant when

relational exchanges are of collaborative nature (Gadde, 2004). Moreover, using power

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appears to have a negative effect on long-term positive performance outcomes, and thus companies appear to be using power with more caution nowadays.

Moreover, Thorelli (1986) proposed that power can condition others to comply with requests, yet Morgan & Hunt (1994) added that this condition alone would not lead to successful relationship outcomes. Further, the use of coercive power can lead to conflict and vice versa.

Conflict is ‘the perception on the part of a channel member that its goal attainment is being impeded by another, with stress or tension the result’ (Gaski, 1984, 11). From research on industrial relations, it is known that conflict is costly and should minimized, which is assumed to hold for B2B relationships as well, as solving conflicts requires using resources (time, human resources, etc.) Therefore, firms relying solely on their power in relationships experience less success than if they would not.

Commitment is an antecedent of power (Leek & Mason, 2010) and power symmetry leads to feelings of closeness (Oyamot et al, 2010), whereas asymmetry is assumed to lead to the opposite, namely feelings of distance. Further, Gadde (2004) points out that a symmetrical relationship leads to feelings of mutual trust, as well as commitment. Power has always been an important factor in B2B relationships, yet it is exploited differently in today’s networking channels compared to when it was mainly featured by traditional arm’s-length relationships (Gadde, 2004).

Power and RSIs. If power is defined as the extent to which one partner is able to influence the other, and commitment is an antecedent of that power, then in unbalanced situations

(asymmetrical relationships), one could expect that the more powerful party may be inclined to force the less powerful party to engage in more substantive relationship-specific

investments. This is often included in definitions of power, in that it allows one party to

convince the other to ‘do something he/she would not have done otherwise’ (Gaski, 1984, 10).

As power can cause conflict, which has been found to negatively influence the success of

relationships as it inhibits communication and therefore information diffusion and sharing

(Jaworski & Kohli, 1993) one might expect that this would give rise to more opportunism and

therefore less willingness to invest. Indeed, this seems to be the case, as Oyamot et al (2010)

point out that a high level of power balance leads to more relationship satisfaction, which

would imply that partners would be more willing to invest in the relationship.

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A study conducted by Mysen et al (2012) showed that suppliers were typically more dependent of buyers, and thus buyers have a higher level of power, by e.g. being able to renegotiate prices. Moreover, suppliers are then unfortunately left to either terminate the relationship, which would result in lost relationship-specific assets or stay in the relationship with the unfavourable deals. This would furthermore, decrease their willingness to put effort in maintaining the relationship. Therefore, a symmetrical relationship should increase

partners’ willingness to invest in the relationship, and an asymmetrical relationship, in which the supplier believes to have more power, should have a negative influence on the level of supplier’s RSIs. This is reconfirmed by Gadde (2004) in that higher levels of shared resources actually restrict the regular exploitation of power.

H 7 (a): Unbalanced supplier power has a negative causal link with relationship-specific investments

Power and Cultural Distance. Power gives rise to conflict (Gaski, 1984), and conflict in culturally distant channels is assumed to be more difficult to overcome. It can be expected that it is more difficult for culturally distant people interacting to understand the partner’s point of view, as opposed to relationships in which the parties are more similar to another.

Thus, when conflict arises, higher costs are incurred to find a solution and the parties would be less willing to invest in one another. Further, asymmetrical relationships give rise to perceptions of opportunism. When cultural distance is high and power balance is low, one could expect that cultural distance has a negative influence on the power-investment link.

When balance of power is high and cultural distance is high, one might expect a less negative impact of cultural distance due to this constellation. Still, the power-investment link should be negatively influenced by distance.

H ₇ (b): Cultural distance has a negative impact on the imbalanced power-investment

relationship.

23 2.2 Conceptual Model

First of all it is assessed whether those differing levels of investments indeed have a positive significant influence on performance outcomes as found by previous studies.

Also, the following conceptual model displays the proposed relationship between the independent variables trust, understanding, cooperativeness, commitment, closeness, and power (dimensions of relationship atmosphere) and the dependent variable relationship- specific investments (RSIs) based on the findings from academic literature reviewed earlier.

In other words, it is explored whether the IMP2 dimensions of relationship atmosphere have a causal link to RSIs and thus expect them to be antecedents of RSIs. All dimensions, except for power imbalance, are hypothesized to have a positive causal relationship with investments.

Furthermore, cultural distance, which is calculated with the Kogut & Singh cultural distance index between the buyer’s and supplier’s home country, affects the level of RSIs caused by the differing dimensions in relationship atmosphere. Cultural distance adds uncertainty to the environment in relational exchanges and thus is proposed to have a negative moderating influence.

On the left side of Figure I, the independent variables are grouped together. The moderator

‘cultural distance’ can be found in the middle, and both dependent variables are depicted on the right.

FIGURE I

Conceptual Model

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3. RESEARCH DESIGN

Although relationships evolve and are dynamic in nature, as the study is built on the IMP2 database, it allows only a static representation of the data collected on B2B relationships. This might not be the optimal way to assess such relationships, but nevertheless allows gaining insights from one point in time through empirical analysis. The objective in this chapter is to elaborate on how the proposed conceptual framework is to be tested. First, the research method is defined, followed by a description of the sample and the data collection, in which the data used for analysis is explored as well. Subsequently the plan of analysis is laid out and the operationalization of each concept is illustrated.

3.1 Research Method

A deductive approach with quantitative analysis is used to explore the relationships between the variables in this thesis. The conceptual model is composed of six independent variables, one moderator, and two dependent variables and there are seven hypotheses to be tested. A specific type of statistical analysis is suited and will be used to assess those links, namely a partial least squares (PLS) regression.

None of the independent and dependent variables were specifically tested with a single-item question in the dataset, which is why the underlying constructs of multiple items need to be extracted prior to analysing their relationships with one another. PLS-based structural equation modelling (SEM) is particularly suited for the objectives of this study for five reasons: (1) it can work adequately with formative scales, (2) data does not need to be

normally distributed, (3) it allows to test models with a large number of predictor variables in a comprehensive manner by extracting underlying factors from the variables similar to Principal Component Analysis (PCA), (4) it regresses those underlying constructs on one another comparable to a multivariate regression resulting in standardized partial regression coefficients (path coefficients) to estimate the relationships between them, and (5) multiple interlinked independent and dependent variables can be tested simultaneously.

It is worth noting that prior to processing the data, PLS standardizes the data by rescaling it to

a mean (μ) of 0 and a standard deviation (sd) of 1. During processing, missing values are

detected and corrected for. The extraction of the latent constructs is done using an oblique

rotation method known as Promax rather than the popular Varimax, as the latent variables are

expected to be correlated when performing PLS-based SEM analysis (Kock, 2010). No