Supplier relationship management

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Literature Review

In this chapter, we provide the theoretical frame for our thesis. Firstly, we introduce general characteristics for supplier-buyer relationships such as how to classify supplies and the role of performance. Second, we show characteristics that are different in the Chinese and Taiwanese business context and derive cultural dimensions from the theory that are most important within the context of SRM.

Supplier Relationship Management

The supplier-buyer relationship has gotten more attention in the literature recently with the realization that the relationship influences the performance of the buyer and the supplier and with that, the performance of the whole supply chain (Miocevic & Crnjak-Karanovic, 2012). Hence, the relationship with suppliers can benefit the whole supply chain and are seen as an intangible asset. Some of the relationships are more important than others and can be described as key (Ivens et al., 2009). That acknowledgment leads to the understanding, that the supplier relationship management is of strategic importance and requires a managerial framework in order to monitor the relationship with key suppliers (Miocevic & Crnjak-Karanovic, 2012). The first step in this process is to analyze the performance of each supplier in order to identify those suppliers that are of strategic importance. The relationship management differs to a great extend for each supplier according to the overall importance of that supplier (O’Brien, 2014).
To establish healthy relationships is certainly more important with supplier of strategic importance. The term healthy relationship is vague and the meaning may differ depending on the point of view. The word healthy implies that the relationship is long lasting and sustainable (Ireland & Webb, 2007). A relationship is long lasting when both parties have common goals, interact in harmony and are important to each other Trust and power have been identified as key determinants of a healthy relationship. For a healthy relationship, trust and power must co-exist in a balanced way for it to contribute positively to the performance (Ireland & Webb, 2007). Both, trust and power, can function as a coordination mechanism in a relationship by providing clarity over responsibilities and enhancing the predictability of the partner’s behavior (Bachmann, 2001).

Classification of Suppliers

Most companies have a very wide range of suppliers that they have some kind of relationship with. Most relationships are of a transactional character, while some go deeper. That means, that some relationships are worth more than the others to the buyer (Ivens et al., 2009). Distinguishing these relationships into different categories makes sense, because different relationships require different treatment. Along a scale, suppliers can be classified as transactional suppliers, important suppliers and strategic suppliers (O’Brien, 2014). Suppliers can be classified into these categories by evaluating their capability and their willingness (Rezaei & Ortt, 2012; Rezaei, Wang, & Tavasszy, 2015). Their capability derives from their current performance in terms of many different measurements (e.g. delivery, price, environmental performance, reliability, lead time, quality, process capability). These measurements vary from each case depending on the importance to the buying firm (Giannakis, 2007). The willingness refers to the supplier’s willingness to adapt, develop and cooperate. This can be measured by reviewing the supplier’s commitment to the long-term relationship, their ethical standards, the honesty and quality of communication and their commitment to improving the product itself and/or the process (Rezaei et al., 2015).
However, Cox (2003) adds the idea that the scarcity of resources also plays an important role when evaluating the importance of a supplier. A supplier may be very willing and capable. But if the resource that supplier has to offer is not scarce but widely available, switching suppliers becomes very easy. Hence, if the resource is of no strategical importance (not scarce) to the buyer, the supplier remains unimportant.
Since we establish criteria for a healthy relationship between a buyer and supplier, we mainly focus on the strategic and important suppliers. That is because transactional suppliers are very exchangeable for the buyer. Thus, the buyer has little interest of committing to a long-term relationship with such a supplier. Managing a transactional supplier is uncritical because the relationship is mainly based on the transactions with little focus on the trust and power aspects of that relationship. Strategic suppliers on the other side are of such an importance to the buyer, that the buyer has a great interest in establishing a healthy relationship (O’Brien, 2014).

The Role of Performance

In the past, big buying firms scanned markets for cheap purchasing prices as their main criteria for selection. The trend now is to evaluate the whole performance of a supplier in terms of quality (Schuh, 2014), trust and commitment to the relationship (Han, Wilson,Dant, 1993), the power relation (Terpend & Ashenbaum, 2012), resilience to disruptions (Hosseini & Barker, 2016) and the logistical service (Talluri & Sarkis, 2002). Subsequently, the performance of the supplier depends on a broad variety of factors. Only if the supplier is highly committed to the relationship, the supplier’s perception of the collaboration has a positive influence on the supplier’s overall performance (Prahinski & Benton, 2004). Measuring the performance of the supplier becomes of strategic importance considering the vast amount of suppliers that most companies have. The purpose of measuring the performance of a supplier is to identify gaps between the targeted performance and the reality. The consequence of such a gap depends on the strategic importance of the specific supplier, but in the long run, that gap also negatively influences the strategic importance of the supplier. On the other hand, the consequence of bad performance of a transactional supplier may be, that the buyer switches to another, more reliable supplier. That is because the switching costs of transactional suppliers are fairly low and there are plenty of substitute suppliers in the market (O’Brien, 2014).
If the performance of important or strategic suppliers is not sufficient, the switching costs are much higher. The reason for this is that the collaboration between these suppliers is closer with a higher degree of integration and idiosyncratic investments due to a longer relationship. Consequently, finding an alternative supplier in the market is much more difficult (Friedl & Wagner, 2012). Hence, the buying firm will try to support the supplier to improve the performance. But persistent bad performance weakens the position of a supplier and motivates the buying firm to decrease the strategic relevance of that specific supplier (Friedl & Wagner, 2012).
To conclude, the performance of a supplier is an important criterion for the supplier classification. The performance is nowadays evaluated by looking at a broad array of performance indicators. We chose to work with the dimension of power and trust in the cultural context, because they are highly relevant in the context of supplier relationships with Taiwanese and Chinese suppliers. From the performance factors, trust and power are the ones that are influenced the most by different cultures (Xie, Li, Su, & Teo, 2010; Z. Zhang & Zhang, 2013).

Cultural Context of Supplier-Buyer Relationships

The establishment of supplier-buyer relationships can be briefly categorized by the general characteristics mentioned in the previous section, which give an indication whether the relationship is healthy or struggling. However, when establishing supplier-buyer relationships between two parties with different backgrounds and values, additional factors besides financial performance determine a successful relationship. This is where the cultural dimension needs to be taken into consideration. That is because the cultural dimensions influence the behavior, which in turn has an impact on the financial performance, power relation and trust (Z. Zhang & Zhang, 2013). The impact of culture on the relationship between suppliers from China and Taiwan and Western buyers has been largely neglected by scholars (Xie et al., 2010). The following sub-section aims at defining culture for the purpose of this paper, examining the relevance of culture today and in the context of business, as well as defining ways how to measure cultural differences.

What is Culture?

Before trying to understand where the differences between domestic and global management cultures and approaches lie, one must understand the many different ways in which culture is influencing and determining the life of people around the world. Generally, it can be said, that a culture defines itself on three different levels, which can be further categorized into visible and invisible, respectively above or below the surface of culture. Hanley (1999) uses the metaphor of an iceberg by arguing that culture is like an iceberg sticking out of the ocean (p. 3), while the visible tip unveils just a tiny fraction of a culture and most of it is hidden under the surface. The first level, which is visible, includes artifacts and creations. Here, architecture or the way people dress in a specific society can be used as examples. On the second level values such as strategies, goals or philosophies are settled, which are not always directly visible, however may become apparent in time. The third and deepest level involves beliefs, feelings and perceptions. These certainly go below the visible surface of culture and thus, are invisible for people outside a certain society. The three levels combined together, form a culture and thus cultures can have many different features on each of the levels (Schein, 1984).
All cultures have differences and similarities, and particularly distinguish themselves through the way which was chosen to find a solution to a certain problem (Trompenaars Hampden-Turner, 2012). Therefore, we will start with the definition of culture, as it became clear, that scholars in this field have very different understandings of what culture is. Adler and Gundersen, (2008) offer a rather simple definition of culture, by describing it as a way of life influenced by behavioral patterns which are transferred by members of the society. Compared to other definitions of culture it seems to miss out some essential parts. The definition of culture as a way of life is not directly supported by the scholars Maanen and Laurent (1993). However, they also see it as a major part of life, by stating, that the cultural indoctrination begins as birth and is evolving from there on trough all kinds of stimulus (gestures, tones, colors, smells etc.) while we are being raised, until the day one dies.
Herbig and Kramer (1992) argue that different cultures result in different perceptions of the world, e.g. in the way we show emotions, define goals, or motivate ourselves. Moran’s (2014) definition of culture supports that notion, by stating that culture “gives people a sense of who they are, of belonging of how they should behave and what they should be doing” (p. 10). He describes culture as a problem-solving toolset, which helps people of a society to cope with their problems in a particular environment. It allows people to create a distinctive reality around themselves (Moran et al., 2014). Other scholars generally seem to have a consensus that culture is an essential part of our life, which determines our actions in day to day life to a large extent and thus there is a close connection between culture and the way we do things (Adler & Gundersen, 2008; Herbig Kramer, 1992; Maanen & Laurent, 1993). Unlike the definitions above, Salomon (2016) uses a broader definition. He highlights the highly complex nature of culture, which has roots in many different fields, as it is influenced by politics, history, economy, geography, society, education, technology, linguistic and religion. Nevertheless, he highlights social, linguistic, and religious factors as the most influential. In line with the general definitions by scholars mentioned above, the definition of culture as a tool-set for behaving correctly in a certain environment, which is determined through values and believes, will be applied. The factors and their importance for cultural behavior patterns will be identified at a later stage.

Relevance of Culture

The aforementioned importance for (multinational) organizations to look out for possibilities of value creations around the globe, implies that they need to face and deal with different cultures in order to find suitable supplier or partner for their business. Yoshida (2002) goes so far, as to say that going global is a criterion for survival in the interconnected world of today, otherwise extinction due to lack of competitiveness is likely. The fact, that everything is connected and thus practices from one entity has influence on the other and vice versa, suggests that cultures also interconnect and thus mix in one way or the other.
Surprisingly, even in today’s highly interconnected and open world, the lines between different cultures around the world can still be drawn relatively clear. Unlike other institutions in nowadays ever-changing world, which dissolve relatively quickly when new stimuli question the current state and eventually trigger change, cultures are more or less resistant to change. Salomon (2016) highlights, that cultural institutions are more stable than e.g. political or economic institutions and change over generations rather than in a period of years. Another scholar supports this and writes, that the recent removal of physical barriers e.g. through technologies or possibilities to travel, does not mean, that the philosophical and cultural barriers dissolve as easily. As a matter of fact, they seem to be little influenced by the rapid changes of the environment (June Ock Yum, 1988). It can be concluded, that today, there still is an urgent need of flexibility in order to respond and react positively to practices which significantly differ from the ones in the home country (Moran et al., 2014).

Business and Culture

Culture affects business and the following paragraph aims at identifying the differences in business management among different cultures and the ways in which culture is influencing organizations and their practices. Generally, management means making decision which affect the whole organization, its divisions, and, due to todays close relation of business and culture, also the society (Adler & Gundersen, 2008). In short, culture has to be considered when doing business in a multinational environment. Hofstede (1984) concluded, on basis of his impressive empirical data analysis, that organizations are cultural-bounded.
As described above, the lines between cultural behavioral patterns are still surprisingly clear. This requires parties which interact for the purpose of doing business to be aware of the actual differences, in order to behave appropriately. The scholars Herbig and Kramer (1992) argue, that doing business in a cross-cultural context results in an exceptional rise of complexity and thus the party visiting the other needs to be aware of the local practices. Literature describes several examples where people missed to bridge the cultural gap, which not seldom results in the failure of a business meeting (Herbig & Kramer, 1992; Reeder, 1987; Ricks, 2006; Salomon, 2016). Thus, intercultural experience is needed in order to become more broad minded and tolerant for culture “uniqueness” (Moran et al., 2014, p. 28). Herbig and Kramer (1992) go even further by arguing, that in order to understand the other party fully, one would have to see through the other parties eye (p. 287). The described importance of cultural sensitivity and its consideration is highly important. As an example, Helmold and Terry (2017) mention that neglecting certain factors in most parts of the Asian culture, results in the creation of situations where the other party “loses face”. Which in turn is likely to result in the failure of a business meeting (Ricks, 2006).

1 Introduction
1.1 Background
1.2 Problem discussion
1.3 Purpose and research question
1.4 Scope and delimitations
1.5 Outline
2 Literature Review
2.1 Supplier relationship management
2.2 Cultural context of supplier-buyer relationships
2.3 Dimensions of Culture
2.4 Summary of cultural dimensions and hypothesis
3 Research methodology 
3.1 Methodology
3.2 Deductive reasoning
3.3 Methods
3.4 Research quality
3.5 Research ethics
4 Empirical findings 
4.1 Dimension of trust
4.2 Dimension of Power
4.3 Dimension of Communication
4.4 Dimension of Time
4.5 Results of survey
5 Analysis
5.1 Trust
5.2 Power
5.3 Communication
5.4 Time
6 Conclusion
6.1 Contributions
6.2 Managerial implications
6.3 Limitations
6.4 Further research
Reference list 
Appendix
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Supplier Relationship Management in China and Taiwan A case study with Bufab to identify the main criteria for a healthy supplier buyer relationship