Embeddedness, Interdependence, and Opportunism in Organizational Supplier-Buyer Networks

Abstract

Despite the value of Williamson's (1975; transaction cost economics perspective to organization theorists for offering new ways of thinking about relations between organizations, its focus on supplierbuyer dyads operating on a continuum ranging from markets to hierarchies de-emphasizes the importance of cooperative network relations. In this paper; theory and hypotheses are developed explaining constraints on the emergence of opportunism when supplier-buyer relations are considered in a network context. The general thesis is that the opportunistic behavior of individual network suppliers relative to the dominant buyer; or hub firm, will decline at increasing levels of embeddedness in an interdependent supplier-buyer network, despite conditions of high asset specificity and small numbers bargaining.In recent years, the transaction cost economics perspective of Williamson (1975; has been adopted by organization theorists as one way of helping to explain vertical relations between organizations (c.f. Barney & Ouchi, 1986; Williamson & Ouchi, 198 I ;Hill, 1990). According to this view, the uncertainties of market relationships coupled with the bounded rationality of decision makers makes it likely that suppliers and buyers will seek to routinize their transactions by developing more established repeat relations with each other. However, such relations create mutual dependencies, based on what Williamson refers to as asset specificity and small numbers conditions. These conditions enhance the likelihood of opportunistic behavior, or "self-interest seeking with guile", resulting in intolerable transaction costs. When this happens, the market relationship will fail giving rise to a hierarchy (i.e. vertical integration). Transactions then become internalized, eliminating the uncertainty of the market and protecting against opportunism through a formal governance structure.One concern some writers have had with this line of thinking is that organizations that are not vertically integrated often do not engage in market-based relations with many of their suppliers or buyers, but instead, purposely establish and maintain long-term, cooperative, voluntary (i.e. non-owned) supply or distribution

Evolving ICT and governance in organizational networks - Conceptual and theoretical foundations

“…Public service networks are collaborative, inter-organizational networks that have become a common way to deliver public services (Provan 1993). Service delivery can include activities and sub-processes executed by a variety of public organizations and the dependencies among the activities of these agencies need to be managed.…”

Strategic Approaches to Domination in Supply Chains

“…Womack's examination (1990) of Toyota's supply chain showed how a powerful manufacturer can work closely with a limited set of suppliers to reduce waste and inefficiency. In the related sphere of supply chain 'networks', and building on resource dependency theory, Provan (1993) argued that interdependences, established through routine transactions and information sharing, provides a disincentive to opportunism, since sub-performance by one member of the network impacts on all members and prompts punishment. Although these theories are logically sound, they failed to recognise their hidden assumptions regarding the distribution of power within the supply chain.…”

“…During the 1990s it became evident that manufacturers, suppliers and retailers became more interdependent on each other. ( Provan, 1993;Skjott-Larsen, 2006) In customer responsive supply chains the opportunistic behaviour of individual manufacturers and suppliers relative to dominant retailers declined with their increasing levels of embeddedness and dependency on their key retailers. Overall the total transaction costs dropped along the total supply chain.…”

Types of embedded ties in buyer-supplier relationships and their combined effects on innovation performance

“…Thus, many studies (Provan, 1993;MacDuffie and Helper, 1997;Dyer and Singh 1998;Nooteboom, 1999;Dyer, 2000;Dyer and Nobeoka, 2000;Andersson et al 2002;Uzzi and Lancaster, 2003;Vickery et al, 2003;Droge et al 2004;Gulati and Sytch, 2007) have stressed mainly the bright side of "collaborative relationships", "high involvement practices", "quasi-partnerships" or "embedded ties".…”