“Supplier monitoring practices for sustainability under buyer-supplier power asymmetry”

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“Supplier monitoring practices for sustainability under

buyer-supplier power asymmetry”

Final Research Paper MSc SCM

University of Groningen, Faculty of Economics and Business

By Tianjiu Yang S3196569 Reitdiephaven 171 9746 RC Groningen t.yang.5@student.rug.nl 22th_{June 2018}

SCM Thesis Supervisor: Chengyong Xiao

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Abstract

This article aims to find out how buyer-supplier power asymmetry influences supplier monitoring practices for sustainability goals. Taken from the perspective of a powerful buyer still dominates research on power asymmetry and sustainable supply chain management in buyer-supplier relationships. As a novel alternative, this paper presents a low-power buyer firms perspective and argues that despite having little mediate power to influence powerful suppliers, low-power buying firms can still use expert or referent power to attain interdependence between an imbalanced BSR. Since not all low-power buying firms have more expert power or referent power than their suppliers, we argue that low-power buying firms can still bypass power asymmetry through reducing supplier base complexity or creating own mediated power. Specifically, we explore how managers within buying firms make sense of and respond to supplier monitoring practices under power asymmetry in SSCM context. We conduct four in-depth case studies of Low-To-Medium technology manufacturing companies that source from powerful suppliers. While we found mediated power and non-mediated power all facilitates supplier monitoring practices for sustainability goals, we also observed that companies restrain themselves to use coercive power as they perceive using coercive power would do harm to the relationship between supplier. We highlight that taking a collaborative way of implementing sustainability works better than taking an adversarial way, and buyers working with suppliers help build "true" vision of sustainability within a BSR. We outline that institutional pressure within a specific industry would affect buyer's determination and supplier's willingness for sustainability.

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1. Introduction

It is generally challenging for companies to deal with powerful suppliers (Tangpong et al., 2015). In a buyer-supplier relationship (BSR), suppliers are usually reluctant to implement sustainability because they need to develop additional financial and technical resources (Cheung & Rowlinson, 2011; Porteous et al., 2015; Hajmohammad &Vachon, 2016). In a buyer dominant situation, supplier monitoring is one of the most effective ways to manage supplier sustainability (Grimm et al., 2016). However, the buyers at a weaker position are limited in power in terms of mechanism to ensure the compliance of supplier because the supplier has little fear of losing business (Touboulic et al., 2014; Reimann & Ketchen, 2017). This research provides a novel perspective as to how buyer-supplier power asymmetry influences supplier monitoring practices by low-power buyers.

Previous researches prove that buying firms could influence suppliers to adopt sustainability initiatives using supplier monitoring (Walton et al., 1998; Beske & Seuring, 2014; Akhavan & Beckman, 2017). Though these scholars studied the impact of supplier monitoring practices on SSCM, few researchers have taken the perspective from a weak buyer. Most of the studies analyzed how a powerful buyer exercised its power on its supplier to make sustainability implementation accepted and adopted (Touboulic et al., 2014; Reimann & Ketchen, 2017). In the context of SSCM implementation, the specific challenge for low-power buyers is that they need to make powerful suppliers comply with sustainability standards which are perceived as costly and unnecessary (Nakano & Hirao, 2011) without exercising power. Dominant supplier monitoring practices such as giving non-compliant suppliers penalties (Pullman et al., 2010; Sajjad et al., 2015) are not applicable for low-power buyers.

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6 several researchers argue that exercising buying power on suppliers brings damage to the commitment to the relationship (Hingley, 2005; Ireland & Webb, 2007; Crook & Combs, 2007) , which is a barrier to sustainability implementation. Power surplus to the advantage of buying firms is a pre-condition of effective application of monitoring practices in SSCM. However, buying firms are not always the power holder in buyer-supplier relationships. Given the mixed and inconclusive research, it is interesting to further study on how low-power buying firms can apply monitoring practices over powerful suppliers in sustainable supply chain management. A research question is thus raised as follows.

How does buyer-supplier power asymmetry influence supplier monitoring practices of low-power buying firms for implementing sustainability in the supply chain?

This research contributes to SSCM theory as prior studies have taken the power surplus of buyers for granted, whereas in reality buyers are not always the power holders in supply chains (Zimmer et al., 2016). As little is known about how low-power buyers are using supplier monitoring practices to manage their powerful suppliers for sustainability goals, this research is explorative, aiming at elaborating existing theory (Ketokivi & Choi, 2014). Low-to-medium technology (LMT) manufacturing industry will be selected as Ding et al. (2018) claimed that LMT manufacturing firms widely apply supplier monitoring practices for sustainability goals. Moreover, Guo et al. (2017) claimed that supplier monitoring is one of the easiest approaches to managing supplier practices in LMT manufacturing industry, where factory visits and process audits are generally applied by buyers. LMT manufacturing industry is a commodity industry where many small firms could be focusing on their specific field (Grudzien et al., 2018). Though specialized, these firms are facing powerful suppliers such as still mills, manufacturers of processing equipment and monopoly companies that provides standard components (Odongo et a., 2017).

The objective of the paper is to examine how supplier monitoring practices for SSCM are carried out under buyer-supplier power asymmetry and to further explore the effectiveness of these practices. An initial assumption we made is that low-power buying firms are those firms that have little coercive or reward power on their suppliers.

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2. Theoretical Background

2.1 Supplier monitoring in SSCM

SSCM includes multiple processes such as interactions between buyers/suppliers and end customers (Roy et al., 2018), in this research, for the sake of clarity, a widely cited definition of SSCM from Carter & Rogers (2008, p. 368) is used: “the strategic achievement and integration of an organization’s social, environmental, and economic goals through the systemic coordination of key inter-organizational business processes to improve the long-term economic performance of the individual company and its value network". Seuring & Muller (2008) claimed that a sustainable supply chain has been divided into three categories as proposed by Elkington (1994): environmental sustainable supply chains, socially sustainable supply chains and economically sustainable supply chains, which is also known as the triple bottom line(TBL). The supplier's performance on TPL is assessed formally using established guidelines and procedures (Nair et al., 2015). When companies seek to assess and improve the sustainability performance of their suppliers, a supplier monitoring approach is normally applied. Supplier monitoring focuses on assessing the processes or performance of suppliers to check whether specific characteristics or performance criteria with sustainability requirements have been met (Reefke et al., 2014). Supplier monitoring consists of developing sustainability codes of conduct(SCC), auditing the supplier to evaluate whether SCC has been implemented and requiring the supplier to comply with codes of conduct (Diabata & Givindanb, 2011; Gold et al., 2010; Yawar & Seuring, 2018). Sustainability considerations would be added in supplier evaluation (Shafiq et al., 2017), and powerful buyers may terminate the contract with suppliers if they are consistently non-compliant with SCC.

2.2 Power in a BSR

The resource dependence theory (RDT) views a firm to be dependent on its external environment for resources to ensure its survival (Casciaro & Piskorski, 2005). The powerful party provide resources for the weaker party, with the condition that the weaker party complies. A firm is vulnerable to the extent that it depends on its partner for resources that are important to the firm’s business (Nyaga et al., 2013). In a buyer-supplier relationship, power is the ability of one company to influence the intentions and actions of another firm. Two types of power exist simultaneously in buyer-supplier relationships, namely mediated power and non-mediated power (French & Raven, 1959; Reimann & Ketchen, 2017).

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9 is characterized by conscious, intentional use to support the desired outcome. On the other hand, non-mediated power is proven to induce more commitment to the relationship, improving integration, reducing transaction costs and opportunistic behaviours (Jain et al., 2014). Non-mediated power sources (expert, referent, and legitimate) are not specifically exercised to manipulate the target (Provan & Gassenheimer, 1994). In contrast with mediated power, non-mediated power is possessed unintentionally (Maloni & Benton, 2000). Expert power refers to the perception that a company holds expertise or information that is valued by another firm (Terpend & Ashenbaum, 2012). Referent power is the power of being a reference model for others to learn, which is formulated from the desire of another firm to identify with a well-known company or leading firm in a specific field (Nakano & Hirao, 2011). Legitimate power comes from the internalized value that another firm is obligated to accept the influence of the focal firm (Zimmer et al., 2016).

Mediated power is used when powerful firm deliberately influences its business partner using positive or negative reinforcements (Pullman et al., 2010). Non-mediated power is usually exerted in an indirect way and is less manipulative (Provan & Gassenheimer, 1994). According to the research of Schleper et al. (2017), mediated power is more manipulative and could have a negative effect. However, the results of the research are inconclusive. Lacoste & Johnsen (2015) conclude that the use of mediated power in buyer-supplier relationships may affect the commitment to the relationship, which may cause the withdrawal of the weaker partner. While other researchers find empirical evidence, which shows that the use of mediated power increases relationship performance because power brings better controlling (Hingley et al., 2015; Cuevas et al., 2015).

Power asymmetry in this research refers to the asymmetry of mediated power, and low-power buyers are defined as the companies who have limited reward power or coercive power over the supplier. Given that these firms are lack of the “tough” mediated power, they may have to make use of “soft” non-mediated powers in sustainable supply chain management.

2.3 Power in supplier monitoring practices

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10 buyers’ monitoring practices involve persuasion and cooperation rather than threats and compulsion (Gualandris & Kalchschmidt, 2016). Therefore, it involves both reward and coercive power to ensure supplier compliance.

By default, in normal circumstances, buyers are the ones who develop and promote codes of conduct throughout the supply chain (Roloff et al., 2015). During the process of forming a sustainability code of conduct(SCC), the expert power of buyer is needed to form the conducting rules that would indeed stimulate sustainability implementation. (Egels-Zanden & Lindholm, 2015). The buyer should have the specialised knowledge on how TPL is maintained in its specific product type. A proper SCC is used as the benchmark for monitoring the supplier sustainability.

Auditing is used to evaluate that suppliers comply with the company’s requirements and standards in product quality, process flexibility and reliability (Plambeck & Taylor, 2015). Compared to low-power buying firms, it might be relatively quicker and easier for powerful buyers to manage the sustainability of their weak suppliers through supplier monitoring practices (Grosvold et al., 2014). During auditing process, a powerful buyer may simply set up the criteria with the consequence of penalties. If a supplier is found to be consistently non-compliant, the buyer may exercise the power to terminate the supplying contract and exclude the supplier from its sourcing companies (Ross et al., 2015). In other words, powerful buyers enforce sustainability-related requirements easily for their threat to terminate the relationship to ensure that suppliers act according to SCC (Strezov et al., 2017). Auditing the supplier requires legitimate power, coercive power and expert power. Using legitimate power and coercive power enables the auditing to be carried out on a regular basis with support from the supplier (Egels-Zanden, 2017). Powerful buyers impose codes of conduct onto suppliers and require suppliers’ compliance. Expert power mainly facilitates the auditing quality (Kant & Davis, 2017; Vermeulen, 2015). Consequently, some buyers outsource auditing from third-party auditing agencies to get this power (Grosvold et al., 2014).

2.4 Supplier monitoring practices with buyer-supplier power asymmetry

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11 buyers are unable to employ mediated power and use relatively adversarial tactics on its powerful suppliers to implement sustainability.

However, power advantage may be compromised and rebalanced with different partners possessing alternative power sources. One party of the BSR may have an expertise power advantage over its partner yet who may, on the other hand, possesses a legitimate or coercive power advantage. So, in the relationship where power asymmetry exists, different power being simultaneously used may create some level of equality and stability. (Li et al., 2017). When the buyer exercises non-mediated power, i.e. expert and referent power, it shares its understanding and expertise of sustainability implementation, who may highlight the consequences of not adopting sustainability monitoring practices and demonstration of failure caused by not being sustainable. As a result, the supplier would be likely to perceive a higher expectation level within the institutional environment (Yan & Kull, 2015). During the period the buyer exercising non-mediated power on the supplier, the supplier would gradually take sustainability goals as necessary qualifications set by its institution environments. In the end, the supplier would accommodate monitoring practices for sustainability goals (Dong et al., 2016). When non-mediated power is exercised on a BSR, the shared value within this relationship would be strengthened (Bento & Maloni, 2005). Also, the buyer's coaching and training on monitoring practices and sustainability goals would urge the supplier to develop and internalize those shared values and norms on sustainability (Siemieniako & Mitręga, 2017), which would serve as the protocol for decision making. For example, an expert power dominant buying company can share its understanding of the potential benefits of a sustainable supply chain and the information that supplier monitoring generally holds in the implementation of sustainable supply chains. The supplier will weigh the shared information and benefits of monitoring practices, who will then accommodate the supplier monitoring for sustainability goals as appropriate and acceptable business practices. In the end, the supplier will internalize the supplier monitoring practices and support the monitoring implementation as expected

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12 In a nutshell, coercive power and reward power of buying firms, though very little, may still help buying firms to make suppliers accept to SCC as long as the supplier is willing to do business with the buyer (Schleper, 2017). Expert power from the buyer may help the buyer build a powerful persuasion on supplier sustainability development and thus improves buyer feedback to supplier sustainability performance (Gielens et al., 2018). Buyers with adequate knowledge of sustainability development would be more capable of building a better supplier sustainability code of conduct (Chen, 2018). Also, low power buyers with high reputation in sustainability development would also make powerful suppliers to respect their experiences and provide cooperation to sustainability audits from the buyer (Chae et al., 2017). As little literature focuses on how low-power buying firms can apply monitoring practices over powerful suppliers, a preliminary conceptual framework is developed below. Legitimate power and expert power may help buyer provide feedback to suppliers for improvement in sustainability. Coercive power provides the buyer with the authority to carry out the supplier implementation improvement activities. Legitimate power is the basis for the buyer to provide comments on supplier's processes and products. Expert power makes it possible for the buyer to assure feedbacks relevant and of high quality in this regard.

Mediated power Coercive Reward Formulate Sustainability Codes of Coduct (SCC) Supplier auditing Making suppliers comply to SCC Feedback to supplier for improvement

Supplier

Monitoring

Practices for

sustainability

Power

asmmetry

Non mediated power

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3. Methodology

This research focusing on getting an in-depth understanding of the effect of buyer-supplier power asymmetry on supplier monitoring practices of buying firms in the context of SSCM. The case study is chosen in this research to find how low power firms perform on supplier monitoring aiming at the sustainability of supply chain. Following an exploratory approach, this research aims at adding to existing knowledge (McCutcheon & Meredith, 1993). The research would advance the general theory of SSCM by using the context of power asymmetry from the perspective of a weaker party.

3.1 Case selection

Multiple case studies typically provide a stronger base for theory building and explanation. In this research, multiple cases are needed to provide the strong base for analysing the relationship between two well-developed concepts from a novel perspective (Darke et al., 1998). Multiple cases are selected in this research, which allows for comparisons between cases to find out whether a finding is idiosyncratic to just one case or consistently replicated among different cases. Findings from multiple cases are more accurate than the single case study, and multiple cases provide better transferability (Yazan, 2015; McCutcheon & Meredith, 1993). Consequently, a multiple-case study would make it better to understand how low-power buying firms modify monitoring practices to implement sustainability when facing powerful suppliers. The buyer-supplier relationship in LMT Manufacturing sector is the unit of analysis in this research.

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14 3.2 Data Collection

This study will make use of two methods for data collection: interviewing and observations. Interviews will be done to collect first-hand data from key informants, who are purchasing managers, sustainability managers or CEOs. Key informants are selected because they possess specific qualifications such as status, experience, or specialized knowledge of BSRs in the manufacturing sector (Chamberlin et al., 2015). As Howe and Eisenhart (1990) suggested, four to ten cases are suitable for this research because less than four cases would be not sufficient and over ten cases would be non-controllable. Ideally, 4-6 buyer-supplier relationships will be selected for this research. Observations will be done to get second-hand data to know about size, sales and other data related to sustainability issues in the BSR. In addition, dyadic data from both supplier and buyer will be collected to reduce bias and generate better understandings (John & Reve, 1982). Most interviews will be done by the author and some other interviews used in this research will be done by fellow students, and the interviews will be chosen because of the following reasons. Firstly, they are all focusing on the manufacturing sector. Secondly, the interviewee is a key informant. Thirdly, the interviewee’s description of supplier monitoring practices is clear and comprehensive. Semi-structured interviews were conducted and recorded during the spring and summer of 2018. All interviews were done through direct communication with the interviewee such as face-to-face talk or video chat. As non-direct communication such as filling questionnaires would bring reluctance and thus make the interviewee’s answer to be brief and lacks extended views (Mitchell, 1994; Eisenhardt & Graebner, 2007). All interviewers will be sent an interview guide before the interview under the theme of power, supplier monitoring and sustainability in BSR so there will be enough time for the participants to prepare for a BSR which he/she is most familiar with. The interview guide is shown in the Appendix.

Case Buyer supplier relationship being studied What is outsourced from a powerful supplier

Companies interviewed

1 Buyer: B1, produces semi-finished meals Supplier: S1, produces spices & seasoning

Raw materials for synthetic spices

B1 & S1

2 Buyer: B2, produces automobile interior decoration Supplier: S2, produces car interior skin

Automobile interior skin

B2

3 Buyer: B3, produces paper box manufacturing Supplier: S3, produces printed paper

Printed paper B3

4 Buyer: B4, a medical appliance manufacturer Supplier: S4, a workstation computer manufacturer

Workstation computer

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15 Currently, this interview guide is in English, and a Chinese version was made before data collection to suit the needs of Chinese respondents. The interview recordings will be transcribed by the interviewer and the transcripts are used for in-depth analysis. Interview data is supplemented by reports shared by informants and industry statistics. These data would help data interpretation and provide external support for data collected.

3.3 Data analysis

In data analysis, a “narrative strategy” (Langley, 1999) will be used to construct a case story from raw data. The data from interview transcripts and notes will be imported into a database. Atlas.ti will be used to code the data inductively into the first order codes. Gioia methodology (Gioia et al., 2013) is used in this research and first-order codes are extracted into second-order codes by reviewing the literature on power asymmetry (Nyaga et al., 2013) and sustainable supplier monitoring (Govindan et al., 2015). Coding is widely accepted as an efficient way to identify and analyse patterns in the data (Braun & Clarke, 2012), which enables an in-depth understanding of the intra-case study and cross-case comparisons (Voss et al., 2002). Codes are selected iteratively until they can reflect the data thoroughly.

The first order codes are derived from the quotes, sentences and/ or paragraphs that are related to sustainability supplier monitoring practices under power asymmetry or practices that buyer made to overcome power asymmetry in the BSR. An example of the coding scheme is shown below, as the interviewee from buyer B1 commented that “To convince them to use Vitamin E

we use our expertise in finished food market to help them understand that the impact of antioxidants on final customers are great, because my products usually stay on the

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16 of any power types, so these practices are coded as "bypass power asymmetry practices" according to their characteristics. The coding tree is displayed as follows.

Data Reduction (First Order Codes) Practices

(Second Order coding) Power (Descriptive coding) Type of power (Third Order coding) “We use our expertise in finished food market to help them

understand that the impact of antioxidants on final customers are great” (B1)

“Our buyers will tell us where in our products that need specific tuning to better serve the health of end-customers” (S1)

“If our standard is not reached, we would send an engineer to their manufacturing site for 3-6 months to see how we can help the environment friendly requirements getting acceptable in the manufacturing process.” (B2)

“We are providing tutoring classes and meetings for them to teach them that sustainability issues matter a lot downstream and sustainability is one of the most important issues in future global market.” (B3) Expert power Train supplier on sustainability issues Non-mediated power

“So, we provide him with the technical parameters to customize and assemble their workstation. With a prototype engineering machine, together with the supplier we would go to the Food and Drug Administration to apply for a certificate” (B4)

“Our company is a company that has been immersed in the medical industry for many years and understands the entire medical system.” (B4)

“This buyer B1 provide us with the third-party examination and validation agencies that they know.” (S1)

Having knowledge on technical issues other than sustainability

“They know we are one of the best in doing this, so they are quite obedient on issues regarding this topic” (B1)

“Yeah, they think our business processes are quite efficient compared to theirs, and we also think our research team should also learn from them” (B2)

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“I don’t think from an organizational perspective, we have anything for the supplier to learn from us” (B3)

“We understand medical regulations, while they do not understand how the medical industry does compliance, how to register, how to prepare relevant documents, etc. From this aspect, they are amateurs and we are masters, so no doubt they listen to us.” (B4)

“The supplier is a number of China Food industry association, and we are also in this association. We have quarterly meetings, and last time there are already companies making spices mentioned that they would start to use natural antioxidants.” (B1)

“We know this kind of material has already been used by some foreign companies, however, we were focused more on cost reduction to get more profits and the antioxidants we use now is within National standards.” (S1)

“The supplier is aware of the fact that the medical industry is not like other industries in China, the regulations are very stringent. China's GNP pharmaceuticals, drug use, cold chain management and all the equipment used in the hospital are strictly regulated. They know that some computer manufacturers are not accepted as they have no medical certificates.” (B4) Referent power of other companies Suppliers getting institutional pressure in industry

“We think it is ok to have audits from the buyers, they have rights to do so, but we have our right to agree on how frequent that will be” (S1)

“The supplier cannot resist to what already is written before on our contracts” (B4)

“We have little power in adding what’s written on the contract” (B3)

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“All those random checks and monitoring practices can also be viewed as a kind of special training for us to adapt to customer needs and market trends, so we are getting some benefits and the buyer is also getting the benefits they deserved.” (S1)

“When we are expecting new business and finding candidate suppliers, those who rank first on the supplier performance list will be selected first.” (B2)

“If they refuse to do that, we would even pay 30% more than original price to make them meet my requirements.” (B4)

Reward power Giving incentives to implement sustainability Mediated power

“If the supplier S3 uses cheaper oily inks, the cost of dealing with non-degradable products will be high for my clients. So, if the supplier does not compromise, I will go to the industry and commerce quality supervision bureau to report.” (B3) “Once reported, the government will inevitably check it and it is entirely possible that the government may even handle the closure of this supplier.” (B3)

Coercive power Try to create more coercive power

“With only 60 suppliers to manage, we would have enough resources and time to do audit on S1 by our own. By doing this, we are getting better communication and giving more in-depth feedbacks to the supplier.” (B1)

“By only outsourcing from one or two suppliers for each component or material, I have more energy to audit and coach those critical suppliers. We used to ask third party auditors such as BIWEI and SCS to do the audit for us, but their employee have no expertise in food processing and they can only see if there are some general violations in sustainability.” (B2)

“Our engineer knows the detailed processes of supplier S2, so our auditing team are providing quicker and more comprehensive reports regarding supplier sustainability” (B2)

Gain more expert power on target suppliers Reduce supplier base complexity Bypass power asymmetry

“Moreover, this ranking list is open to every company within our supplier base, which makes companies with different power levels competing in a shared battlefield created by us. Since the ranking list is used by us following unspoken rules, we think it is the unspoken benefits or punishments that make the list powerful and useful in managing suppliers.” (B2)

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4. Findings

In the following section, it is presented how the low power buyers in each case carried out monitoring practices under power asymmetry.

4.1 Summary of buyer-supplier relationships being studied

The following part is the summary of the buyer-supplier relationship being studied.

In Case One, dyadic data is available for analysis. Buyer B1 is a firm that makes finished food and its supplier S1 provides food additives for B1. What B1 produces is not the "finished food" that would be served in Michelin-starred restaurants, but the Bento meals sold in convenient stores like FamilyMart. Bento meals are of single-portion packs which usually consist of rice or noodles, meat or fish and cooked vegetables. Before being consumed, the bento meal normally needs two to three minutes of microwave cooking to provide the best taste. The buyer is having relatively little mediated power on the supplier because of its high dependency on the supplier.

In Case Two, the company B2 is a manufacturer that making vehicle interior decorations. The supplier S2 makes artificial PVC products which look very alike the genuine leather. The PVC covers a large area of rooftop and thus influences the quality delivered to the customer of B2 significantly. The supplier S2 is currently in a monopoly of technology and is a foreign-funded Chinese enterprise. At present, among suppliers of vehicle interior products, only S2 can deliver the kind of fine simulation that meets B2 customers' requirements. The buyer B2’s sustainability requirements are mainly focused on the environmental sustainability in supplier’s manufacturing process.

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20 In Case Four, The BSR being studied in this case is in the medical industry. The buyer B4 is a company which makes surgical diagnosis systems and the supplier S4 provides the buyer B4 with workstation computers. The supplier S4 is relatively powerful because it is a technically-strong supplier. This company can develop image processing workstations for surgical diagnostic systems. Without this software, the surgical diagnostic system of buyer B4 cannot realize its core function, which is to automatically pre-diagnose for doctors. The buyer B4 must buy the workstations from supplier S4 to complete their system, so this supplier is very powerful. The buyer B4 is focusing mainly on the environmental and social sustainability of its suppliers. LED screens used in workstations cause light pollution. In order to accomplish its goals, the buyer B4 developed specific codes of conduct for supplier S4. The buyer would require S4 to customize special LED screens to meet sustainability requirements.

4.2 Supplier dominance

In all four cases, the suppliers S1, S2, S3 and S4 are in a dominant position compared to buying firms mainly because of the perceived criticality of their positions. Buyers B1, B2, B3 and B4 have to rely on their suppliers to obtain the essential product components that are central to their core service. Moreover, suppliers are in a dominant position because the buyers have found it very hard to search for alternative suppliers, while the suppliers are not worrying about selling their products. Also, the interview data showed that suppliers tend to sign contracts with the buyers on a yearly or half-an-year basis. The buyers cannot force the suppliers to enter into a long-term contract and thus lock the suppliers, which proves that the buyers are in a low power position.

4.3 Non-mediated power facilitates supplier monitoring practices in SSCM

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21 4.3.1 Expert power

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22 parameters. The powerful supplier is dependent on the buyer’s connections with the specific examination agencies to get the necessary validation at a discount rate. As such, the buyer’s dependence on supplier’s product is somewhat partially compensated by the supplier’s dependence on the buyer’s expert guidance. With interdependence occur in the BSR, the buyer and supplier form a collaboration relationship on implementing sustainability. As the interviewee from supplier S1 commented that “This buyer B1 provide us with the third-party examination and validation agencies that they know. We will still pay a certain fee but the buyer B1 would ask those agencies to give us discounts.” Also, in case four, the buyer has expertise in applying for the medical certificate of supplier’s product and the supplier is dependent on buyer’s knowledge and experience to keep itself from vanishing in the medical appliances industry, which is a market of high profits. Thus, the buyer’s expert power is transmitted to a resource that the powerful supplier is relying on. As the interviewee from B4 commented, “We understand medical regulations very well, and they need our guidance on how the medical industry does compliance jobs, how to register, how to prepare relevant documents, etc.”

4.3.2 Referent power

Referent power of buyer makes powerful suppliers to respect buyer's experiences in sustainable development and thus reduce the resistance to monitoring practices. In Case One, the supplier expresses that they are willing to learn from the buyer because they know the buyer's reputation in sustainability development. The reputation of low-power buyer makes monitoring practices perceived as valuable and a must-learn by the powerful suppliers. As the interviewee from S1 commented that, "They are sustainability leaders for a reason, we think listening to their advice is a way of improving ourselves."

The same goes in Case Two and case four, where the supplier think they must learn from the buyer. However, the referent power source is different than the source in Case One. In case two, the supplier perceives referent power because they think they should learn from the economic process efficiency of the buyer. While in case four, the powerful supplier is a newly entered company in the medical industry and the referent power of the buyer automatically becomes relatively high. As the interviewee from company B4 commented that, “They are amateurs and we are masters, so no doubt they listen to us.”

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23 from their audits and supplier meetings. Surely it is costing us, but you always have to pay for improving yourself, right?”

4.4 Mediated power

In Case Two, the buyer B2 creates its own supplier ranking list, whereby sustainability is one of the main criteria. The ranking is connected to several benefits for suppliers, such as placing new orders with suppliers or making the supplier exclusive. Also, getting low ranks means penalties and even cutting order amount. With this list, the buyer creates its mediated power against the powerful suppliers. As the interviewee from B2 said,

“When we are expecting new business and finding candidate suppliers, those who rank first on the performance list will be selected first. Since the ranking list is used by us following transparent rules that are not in written contracts, we think it is the unspoken benefits or punishments that make the list powerful and useful in managing suppliers.”

The same situation goes in case three where buyer B3 is highly dependent on supplier S3 and has little coercive power to force the supplier in using environmentally friendly water-based printing oil on cardboard. Facing marketing pressure, especially pressure of meeting its own customer requirements, the buyer thinks of a way to lend mediated power from a powerful third party. The company B3 would threaten the supplier that they would report to government authorities that the supplier S3 is not cooperating in developing environmentally friendly products. By adding a powerful third party, the buyer B3 creates mediated-power, mainly coercive power against its supplier. As the interviewee from B3 commented that

“Once reported, the government will inevitably check it and it is entirely possible that the government may even handle the closure of this supplier S3. The government is taking these issues to a zero-tolerance level. So, as we acknowledge the powerful suppliers that their refusion on using water-based material may end up with a shutdown of their own company, they suddenly show compliance on our monitoring plan and sustainability requirements.”

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24 “We are getting some benefits and the buyer is also getting the benefits they deserved. The benefits have driven us to be open to their audits and help them, from my point of view, mistakes being found is much more harmless than being found after someone is ill. They may give us more orders, and this drive us to following their sustainability codes of conduct very carefully.” The findings that reward power has an impact on sustainability practice adoption could be for contextual reasons. As in other researches where mediated power is having no impact (Zhuang et al., 2010), there are informal systems of giving favours such as Guanxi (non-business or professional connection). While in Case One, the supplier is more in favour of written contractual terms rather than having relational governance mechanism.

4.5 Supplier base reduction is used to bypass power asymmetry

In Case One, the supplier base is reduced from 200 to 60 to get more energy in auditing and coaching suppliers. While in case three, the buyer only maintains a supplier base of at most two suppliers for each component. From the interview, it can be concluded that having less supply base complexity is helpful for auditing efficiency and effectiveness. Remaining a large supply base means that the buyer must turn to third-party auditors for help, while a little base enables self-auditing. As the interviewee from buyer B2 commented that

“We used to ask third party auditors such as BIWEI and SCS to do the audit for us, but their employee have no expertise in food processing and they can only see if there are some general violations in sustainability. However, whether this supplier is using the best available ingredients for end customers is not clear for them. With only 60 suppliers to manage, we would have enough resources and time to do audit on S1 by our own. “

Moreover, as the supplier base is reduced, and the buyer has enough resources to self-audit the target supplier, the expert power from buyer would be perceived to be stronger by the supplier. The interview data from supplier S1 shows that the buyer

By doing this, we are getting better communication and giving more in-depth feedbacks to the supplier. Moreover, coaching the supplier becomes easier. For example, if I develop advanced product A, I will provide supplier S1 with my independent recipes and involve them in product development. It is not possible for me if I still have a hundred more suppliers waiting for us to handle. The knowledge and product special parameters are what we taught them, and they should be appreciate for that.”

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26

5. Discussion

5.1 Propositions

This study has explored how buyer-supplier mediated-power asymmetry has influenced supplier monitoring practices to implement sustainability. This multi-case study of four buyer-supplier relationships confirms that there are several ways for buyers with low mediated power to apply monitoring practices to implement supplier sustainability. We observed several instances of low-power buyers holding supplier meetings or giving supplier training for the sake of supplier sustainability. This strategy was common among Case A, B and D. In Case A and B, expert power is used as the supplier values buyer's expertise in implementing social and environmental sustainability in the specific industry. In Case D, the powerful supplier complies with sustainability monitoring practices because the buyer helps their products getting sold to hospitals. In all these three cases, we have observed that mediated power advantage of the supplier has been compromised and rebalanced with buyer possessing alternative power sources. The buyers in these cases have expert power and referent power advantage over the supplier. So, in these three relationships where mediated power asymmetry exists, different power being simultaneously used have created some level of equality and stability, which makes it easier for the buyer to implement supplier monitoring practices. This leads to our first propositions.

Proposition 1a: In a buyer-supplier relationship under mediated power asymmetry, a low mediated-power buyer can leverage its expert power to gain supplier's dependence, which would create a relatively equal bargaining position with the supplier and lead to less resistance against supplier audits.

Proposition 1b: In a buyer-supplier relationship under mediated power asymmetry, referent power of low-power buying firm would generate respect from the supplier, which leads to less resistance against monitoring practices.

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27 However, it appears to us that in-car spare parts industry and paper industry, a cooperative way of implementing sustainability is having less influence than the relatively "adversarial" way compared to food and medical industry. As several scholars have suggested, food and medical industry appear to have high social and environmental sustainability awareness and practice level (Shokri et al., 2014; Lindgreen et al., 2009). We also find out that when existing and potential supplying companies in the same market segment initiates the adoption of a sustainability practice, the supplier is more likely to adopt that specific practice. As the interviewee from B1 commented that

“The supplier is also a number of China Food industry association. We have quarterly meetings, and last time there are already several leading companies mentioned that they would start to use natural antioxidants.” On the other hand, the interviewee from supplier side commented that they also know the natural antioxidants would soon be used by other leaders in the industry. In case four, there is also evidence showing that peer pressure appears to affect supplier’s perception on sustainability. As the interviewee from buyer B4 commented that

“The supplier is aware of the fact that the medical industry is not like other industries in China, the regulations are very stringent. They know that some computer manufacturers are not accepted as they have no medical certificates.” The direct evidence shows that institutional pressure in different industries plays a role in shaping the way how powerful suppliers respond to buyers sustainability requests (Peng et al., 2015; Gunther et al., 2015).

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28 Proposition 2: Higher institutional pressure on sustainability reduces powerful supplier’s resistance against supplier sustainability monitoring practices and increase their willing to put more effort to cooperate with the buyer on sustainability issues.

Among all cases, the buyers are not willing to use mediated power such as terminating the contract with suppliers. The main reason is that these buyers do not have such strong coercive power to make buyer comply. Thus, some buyers start to create own coercive power. In case B, the buyer creates a ranking list and links it with rewards and penalties on suppliers. However, though creating a coercive power source, the buyer still uses it ambiguously. The same phenomenon also appears in case C, where the super powerful government is approachable and available, the buyer chooses to use the power as a bluff rather than calling for a direct government impact on the powerful supplier. The interviewee from company B4 claimed that "making friends" with business partners is very important. In case A and Case D, the buyer and supplier are cooperating with together and working things out despite power imbalance. From the interview, we noticed that in line with the study of Schleper et al., (2017), coercive power, is perceived by buying firms as manipulative and causing negative effects. This empirical study also proves evidence to support studies from Hingley et al. (2015) and Cuevas et al. (2015) that using mediated power brings better controlling and supplier performances. However, successful sustainability implementation requires high level of trust and communication level in a BSR (Meqdadi et al., 2017), and the interview data has proved that buying firms taking the collaborative way of monitoring and managing supplier sustainability are thinking about the supplier’s benefits and taking time and resources to share information, which builds up the trust within BSR. Since the interview data showed that non-mediated power use induces coordination and facilitates supplier monitoring practices, while coercive power use reduces trust between buyer and supplier, which hinders supplier monitoring practices, this leads to our third proposition,

Proposition 3a: Under buyer-supplier power asymmetry, using non-mediated power to overcome barriers against supplier sustainability monitoring practices would bring benefits to both sides, and thus enhance trust within the BSR, which helps successful sustainability implementation.

Proposition 3b: Under buyer-supplier power asymmetry, using coercive power to overcome barriers against supplier sustainability monitoring practices would do harm to the BSR, and thus reduces trust within the BSR, which hinders successful sustainability implementation.

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29 the training and monitoring practices from the buyer is quite meaningful and useful in sustainability development. A collaborative way of monitoring supplier and work together with the supplier to develop sustainability requires partners in a BSR to be easily approachable (Busse, et al., 2016). Moreover, the data collected showed that reducing supplier base makes it easier for suppliers to receive feedbacks that reveal progress in getting sustainability goals. This leads to our fourth proposition,

Proposition 4: Under buyer-supplier power asymmetry, reducing supplier base to gain higher expert power available for supplier sustainability monitoring practices would lead to better implementation of supplier sustainability.

5.2 Contributions to theory

Our findings have several implications for advancing theory in SSCM and presenting an alternative to the widely taken perspective on powerful buyers trying to implement sustainability in low-power suppliers. We demonstrate that low-power buying firms can leverage their non-mediated power on powerful suppliers to successfully monitor supplier sustainability. In this study, we also argue that taking an adversarial way of managing supplier is not helpful in realizing sustainability goals.

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30 important contingency factor, the different levels of concern on sustainability in different industries tend to have been overlooked (Michalski et al., 2018). We argue that in an industry where there is a high level of institutional pressure on sustainability, the supplier would also have a lower level of resistance on sustainability. Thus, a high level of institutional sustainability concern in an industry would reduce the willing of powerful suppliers to use their power advantage against supplier sustainability monitoring practices and increase their willingness to put more effort to cooperate with the buyer on sustainability issues. That is, even if a supplier has absolute mediated power advantage on their buyers and can resist supplier monitoring practices for sustainability, they are often affected by the high sustainability level in the industry, and this would make it easier for low-power buyers to successfully gain sustainability goals. Our case study provides evidence that government power is “lent” to small-power buyers to regulate small-powerful suppliers that won’t comply with higher sustainability standards (Wilhelm et al., 2016). However, the effectiveness of this methodology is based on the recent campaign of the Chinese government that promotes "Lucid waters and lush mountains are invaluable assets." Strict laws such as tracing lifelong accountability for ecological and environmental damage (Minjun, 2017) increase government efficiency and availability regarding sustainability issues, which creates huge perceived coercive power on every company. In such specific context, the powerful companies get fared of being shutting down as the government is so determined in building a sustainable country, which reduces its willingness to resist audits or supplier meetings. From this perspective, we add empirical proof to the SSCM theory that government power is indeed acting as a huge enabler for sustainability implementation (Zhao & Guo, 2015).

5.3 Managerial implications

Other than the theoretical contributions, this research has some practical implications for SSCM under power asymmetry. This case study has empirically proved that in a buyer-supplier relationship under power asymmetry, using mediated power to create unequal bargaining position would eventually lead to less trust within the relationship and thus hinders sustainability implementation. Therefore, managers from buying firms who are determined to implement sustainability should try to work with suppliers in a collaborative way rather than in an adversarial way.

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31 sustainability implantation from suppliers. Using this strategy may help company conquer supplier resistance related problems which are beyond the company's original handling ability.

In this study, the empirical proof showed that increasing concern on sustainability reduces resistance against sustainability implementation. Thus, managers from the same industry can form a sustainability association which promotes sustainability practices and know-how to upstream suppliers. Forming association gathers expert power from buyers and induces strong referent power on suppliers, as the association would be seen as an unquestioned authority on sustainability issues. On the other hand, interview data show that cost for sustainability appears to be an irrelevant issue perceived by the buyers. Judging from this perspective, the managers from buying firms should get more detailed feedback from suppliers before giving unrealistic sustainability goals to suppliers.

In this study, government power is also identified as an important role in facilitating sustainability implementation. When sustainability implementation has gained adequate support from formal societal institutions, no supplier would risk themselves suppressing sustainability monitoring practices. It is important for buying firms to remind suppliers to stay in line with the government policies on sustainability development while restraining the actual using of "governmental power", for the power is too strong that suppliers may be destroyed.

5.4 Limitations and future research

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32 Secondly, the studied case takes place in China, which represents a rather unique research setting as the Chinese government is sparing as much effort as possible in developing sustainability (Qi et al., 2013). The updated laws are strict, and penalties are severe, which makes companies in China acting differently than they used to. However, whether this phenomenon would remain consistent and whether those companies have truly accepted the vision of developing sustainability remains unclear. As this study is a snapshot research, which doesn't show the developing patterns like longitudinal research does (Pettigrew, 1990). Since sustainability development and supplier monitoring practices are iterative processes which need to be done step by step, we would encourage future researchers to take a longitudinal perspective to study how power asymmetry has influenced supplier monitoring practices for sustainability goals.

6. Conclusions

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33

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“Supplier monitoring practices for sustainability under buyer-supplier power asymmetry”