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Mitigation of supply chain
relational risk caused by cultural
differences between
China and the West
Fu Jia and Christine Rutherford
Centre for Logistics and Supply Chain Management,
Cranfield School of Management, Cranfield, UK
Abstract
Purpose – This paper aims to add a cultural-relational dimension to the supply chain risk
management (SCRM) literature.
Design/methodology/approach – Inter-firm learning and cultural adaptation literatures are
reviewed, missing themes identified and a conceptual model proposed.
Findings – The authors define the problem of supply chain relational risk (SCRR) and explain the
cultural differences between China and the West, which form a subset of SCRR. They then propose
cultural adaptation as the solution to this problem. Two missing themes are identified concerning the
process of cultural adaptation between China and the West and the causal relationship between
cultural adaptation and partnership performance.
Research limitations/implications – This is a conceptual paper based on secondary data.
Practical implications – Cultural differences between China and the West impact the relational
risks facing Western buyers and their Chinese suppliers. To create a mutually beneficial partnership, it
is necessary for both parties to understand the cultural differences and the process of cultural
adaptation. Ultimately, the paper will help firms mitigate the relational risks associated with cultural
differences.
Originality/val ue – The paper extends prior work in the area of SCRM by adding a
relational-cultural dimension. With a view to mitigation of SCRRs, the authors develop a conceptual
process model, which describes a relationship-building process incorporating cultural adaptation for
the creation of a mutually beneficial partnership, which features a hybrid cultural interface.
Keywords Culture, Supply chain management, Risk management, Buyer-seller relationships, China
Paper type Research paper
Introduction
In October 2001, China became a member of the World Trade Organization. This
indicated that China’s economic development had been recognized and her economic
influence on the world could not be ignored. Over the last two decades, China has become
the world’s leading manufacturing centre producing a wide range of products destined
for Western markets; from shoes, clothes, toys and electrical items to Jili cars recently
marketed in the USA.
The sourcing of products from across the global marketplace is an increasing trend
associated with economic development. This trend is the result of many independent
decisions taken by firms around the world looking for new sources of competitive
advantage. However, these decisions can have unintended consequences, exposing
firms and their supply chains to hidden costs and new, perhaps unforeseen risks
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0957-4093.htm
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relational risk
251
The International Journal of Logistics
Management
Vol. 21 No. 2, 2010
pp. 251-270
q Emerald Group Publishing Limited
0957-4093
DOI 10.1108/09574091011071942
(Christopher et al., 2002, 2007). One such risk is believed to arise from the inappropriate
management of the buyer-supplier relationship in an international context.
There are undoubtedly multiple factors that may contribute to the failure of an
international relationship, such as product quality or supplier reliability; however, when
Western buyers source from China and attempt to build partnerships with Chinese
suppliers, it is highly likely that the players will encounter relational difficulties rooted
in cultural difference.
Monczka et al. (1998) claim that cultural differences do not impact supply chain
performance directly, but indirectly by way of other intermediate proxies such as trust,
intensity of communication and commitment between supply chain partners. Some
other authors argue that cultural distance between supply chain partners negatively
influences the building of mutual trust, which will subsequently impede long-term
coordination (Sirmon and Lane, 2004; Smagalla, 2004). Hence, the cultural differences
between China and the West should be considered as a potential source of risk to
Western buyer-Chinese supplier relationships.
Much of the existing literature on supply chain risk is focused on the sources and
mitigation of performance risks (Tang, 2006; Zsidisin, 2003; Peck, 2006), but very few
have touched on the mitigation of relational risk (Christopher and Lee, 2004; Das and
Teng, 2001; Delerue, 2004). This paper focuses on this neglected area of supply chain
risk, i.e. supply chain relational risk (SCRR) and its mitigation.
First, building on previous work by Jia and Rutherford (2007), we define the problem
of SCRR and briefly explain the cultural differences between China and the West, which
form a subset of SCRR. We then propose cultural adaptation as the solution to this
problem. Two missing themes are identified concerning:
(1) the process of cultural adaptation between China and the West; and
(2) the causal relationship between cultural adaptation and partnership
performance.
A conceptual model of cultural adaptation is developed for future research.
SCRR defined
Supply chain risk management (SCRM) is a relatively new, but increasingly relevant
area of research (Hallikas et al., 2002; Christopher and Towill, 2001; Harland and
Brenchley, 2003; Zsidisin, 2003; Christopher and Peck, 2004; Peck, 2005; Christopher et al.,
2007). Among others, Juttner et al. (2003) propose a systematic, structured concept of
SCRM defined as:
The identification and management of risks for the supply chain, through a coordinated
approach amongst supply chain members, to reduce supply chain vulnerability as a whole.
The aim of SCRM is to identify the potential sources of risk and implement appropriate
actions to avoid or constrain supply chain vulnerability. The four basic constructs of the
SCRM concept are: assess the supply chain risk sources, define the supply chain risk
concept and adverse consequences, track the risk drivers in the supply chain strategy
and mitigate the risks (mitigating strategies).
Khan and Burnes (2007) provide a comprehensive review of supply chain risk and
claim that research into supply chain risk must be located within the broader study of
risk. They continue to argue that a key component of risk is choice, which relates
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to the probability of adverse consequence. Although there are many definitions of risk,
in general terms risk is defined as the probability and negative consequence of an event
(Lowrance, 1980; Rowe, 1980; Moore, 1983; Royal Society, 1992; Mitchell, 1995;
Simon et al., 1997).
Das and Teng (1996) define the risk concepts associated with two independent but
equally important considerations when entering into a strategic alliance: performance
risk and relational risk. Performance risk involves the prospect of not achieving the
strategic goals of the alliance given full compliance by all partners. Relational risk is
defined as: [...] the possibility and the consequence that the partners in inter-firm
alliances do not fully commit themselves to joint efforts.
Delerue (2004) advances Das and Teng’s (2001) concept of relational risk classifying
two types: risks associated with cooperation and risks associated with partner’s
behaviour. Risks associated with cooperation are caused by disorder existing in the
relationship. Risks associated with partner’s behaviour are associated with the
likelihood of opportunism.
Synthesising these risk-related definitions and extending them to a supply chain
context, allows us to propose a working definition of SCRR as:
The risk to the supply chain of either party in a buyer-supplier relationship not fully
committing to joint efforts due to either problems associated with cooperation or problems
associated with opportunistic behaviour.
Cultural differences
This paper extends previous work by Jia and Rutherford (2007), which identified nine
supply relational risk sources by comparing the constructs of Western forms of supply
relationship management and Guanxi, a Chinese form of relationship management.
Guanxi is complex and difficult to define, as there is no word in the English language,
which adequately conveys the exact meaning. It is translated by some as “connections”
but it is best left untranslated (Fan, 2002). Of the two Chinese characters that make the
word Guanxi, the first character “Guan” means a “fortress” or a “pass”, the second
character “xi” means inter-connected (Xin Hua Dictionary). The term of Guanxi
generally refers to relationships or social connections based on mutual benefits
(Yang, 1994); specifically it refers to a special type of relationship that bonds the
exchange partners through reciprocal exchange of favours and mutual obligations
(Luo, 1997). A Guanxi network is indeed an extended family network.
Further examination of the risk sources led to the definition of three risk roots
described by the cultural differences between China and the West. In this previous work,
we argue that the three risk roots (cultural differences) are a subset of SCRR to Western
firms sourcing in China. The three risk roots identified by Jia and Rutherford (2007)
include:
(1) Family orientation vs self-interest.
(2) Guanxi network vs multiple institutions.
(3) Guanxi building process vs Western relationship-building process.
These risk roots, which are summarized below, are in fact key differences between
Chinese and Western culture, which we believe present a relational risk to the partnership
Supply chain
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253
between Western buyers and their Chinese suppliers and consequently to the wider
supply chain.
Cultural difference one: family orientation vs self-interest
One of Hofstede’s (1991) five dimensions of national culture is collectivism and
individualism, which measures the degree of individualism in society. Individualism
pertains to: [...] societies in which the ties between individuals are loose: everyone is
expected to look after himself or herself and his or her immediate family. Collectivism as
its opposite pertains to [...] societies in which people from birth onward are integrated
into strong, cohesive in-group, which throughout people’s lifetime continue to protect
them in exchange for unquestioning loyalty.
Nisbett et al. (2001) explore deeper level differences and claim that the social
differences that exist among different cultures affect not only their beliefs about
specific aspects of the world, but also their naı
¨
ve metaphysical systems, their tacit
epistemologies and even the nature of their cognitive processes. From a
social-psychological perspective, they argue that the cognitive differences between
ancient Chinese and Greeks can be categorized under the heading of holistic versus
analytic thought. Holistic thought is an orientation to the context as a whole including
attention to relationship. There is emphasis on change, recognition of contradiction,
the need for multiple perspectives and a search for the “middle way” between opposing
propositions.
By contrast, analytic thought detaches the object from its context and focuses on the
attributes of the object and their categorisation. The analytic mindset has a preference
for using rules to explain and predict the object’s behaviour (Nisbett et al. , 2001).
The distinction between holistic and analytic thought helps to explain the fundamental
cultural difference between China and the West, which at a surface level (Graen, 2008) is
interpreted as collectivism versus individualism.
Collectivists, such as the Chinese, place group goals and collective action ahead of
self-interest and gain satisfaction and feelings of accomplishment from group
outcomes; while individualists place self-interest ahead of group goals (Earley, 1989,
1993, 1994; Triandis, 1989). In Chinese society, it is specifically the interests of the
family that is put before individual interest (Liang, 1949; Lin, 2001). The family
orientation has been considered as a form of collectivism, however, it is a type of
in-group rather than universal collectivism; therefore, it is more precisely named
familistic collectivism (Yang, 1992).
In the West, self-interest is put higher than group interest. However, whether or not
one can pursue self-interest is based on power dependence because power resides on
other’s dependence (Emerson, 1962). If an individual is dependent on or has no power
over the other, he or she cannot pursue self-interest.
Therefore, in the context of this research, we refer to our first risk root as family
orientation vs self-interest rather than adopting the more generalist dimension of
collectivism and individualism.
Cultural difference two: Guanxi network vs multiple institutions
This dimension is echoed by the two mechanisms regulating collective action proposed
by Hui and Lin (1996), who claim that Chinese culture regulates collective action using
relational mechanisms such as “face” and “familial sanction”, while American culture
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relies more on formal agreements. Hui and Graen (1997) also suggest that China is
typified by the “government of people” whereas the USA is typified by the
“government of law”.
Western organizations are governed by multiple institutions, i.e. formal constrains
over a market economy (Luo, 2000; Xin and Pearce, 1996). Scott (2001) defines
institutionalization as the process by which actions are repeated and given similar
meaning by self and others. According to him, the aspects of the environment through
which institutional influences operate include three pillars:
(1) Regulative pillar. This includes regulatory structures, government agencies,
laws and courts, professions, interest groups and mobilized public opinion.
(2) Normative pillar. This consists of values, norms and rules promulgated by trade
and professional associations.
(3) Cultural-cognitive conception of institution. This pillar stresses the central role
played by the socially mediated construction of a common framework of
meaning.
Orthogonal to the three pillars, Scott (2001) proposes four types of carriers in which
institutions are embedded: symbolic systems, relational systems, routines and
artefacts. There are also six levels of analysis: world system, society, organizational
field (industry), organizational population, organization and organizational subsystem.
These carriers and levels of analysis imply that there are different sources of
institution: world, society, industry and other organizations. Western rules and
regulations have been applied at the societal level and even international level. These
institutions regulate firms by applying network governance mechanisms.
The Guanxi network or extended family network is probably the most important
informal institution in the Chinese-speaking world (Parnell, 2005) and a substitute for
formal institutional support (Xin and Pearce, 1996). Redding (1990) also argues that
networks in China are useful [...] in the regulation of transactions in the absence of
state institutions for that purpose. A well-known Chinese scholar of Fudan University
in China, Ge (2006) argues that family rules are pervasive in China and have
substituted societal rules.
Hong and Engestrom (2004) argue that the issue of authority has deep and unique
roots in Chinese culture. Respect for age, authority and social norms stem from the
Confucian concept of li, which refers to rite and propriety in maintaining a person’s
position in the social hierarchy (Chen and Chung, 1994). A major characteristic of
Chinese culture is the maintenance of internal harmony, which is most likely to be
achieved by compromising individual interests and choosing social conformity,
non-offensive strategies and submission to social expectations (Hwang, 1987). Gabrenya
and Hwang (1996) claim that “harmony within hierarchy” is probably the phrase most
commonly used to characterize a wide range of social behaviour in Confucian societies.
In the context of management, the Confucian li principle favours organizational
hierarchy and centralized decision making (Child, 1994). Hence, we might conclude that
the Guanxi network is featured by harmony within hierarchy.
According to Hofstede (1991), Chinese economies rank high on power distance, which
means that the Chinese are more willing to recognize and accept a hierarchy of authority
than their Western counterparts, as well as depending on the decision of their
supervisors without question (Buttery and Wong, 1999). A high power distance in China
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literally means hierarchy; however, Hofstede’s power distance dimension does not
capture the characteristic of internal harmony, which we understand to be an essential
element of the Guanxi network. In the West, the fundamental reason for low power
distance is that people are governed by multiple institutions such as laws and
procedures rather than hierarchy. Hence, in the context of this research, it seems
appropriate to substitute Hofstede’s high- vs low-power distance dimensions with our
second risk root, i.e. Guanxi network vs multiple institutions.
Cultural difference th ree: Guanxi building process vs Western relationship-building
process
Models that describe relationship building in a Western context are similar in that they
define the sequential stages of an evolutionary process from initial partner contact
through to commitment/dissolution (Dwyer et al., 1987; Graen and Wakabayashi, 1994;
Wilson, 1995; Iyer, 2002, Graen, 2003). Easton (1992) argues that progression through the
stages of the relationship-building process as first described by Dwyer et al. (1987) is
based on the interplay of competition and cooperation. By contrast, Wong and Tam
(2000) offer a Guanxi building model that consists of three optional routing strategies
through four psychological states, rather than sequential stages. We might argue that
this more flexible model reflects that fact that Guanxi is essentially personal and
informal (Luo, 1997; Parnell, 2005) and the process of Guanxi building is featured by the
interplay of face and renqing. Chinese society places great stock on the importance of
face (mianzi), which is an intangible form of social currency and personal status affected
by one’s social position and material wealth (Park and Luo, 2001). Hwang (1987) explains
that renqing is first a set of social norms by which one has to abide in order to get along
well with others in Chinese society; and second a resource that an individual can present
to another as a gift in the course of social exchange.
The Guanxi building process is also based on Yin-Yang principles (Strutton and
Pelton, 1997), which means that when relationships conflict, only two movements are
available to either partner: to push or pull the door. The Chinese adopt a strategy called
yielding, i.e. if the other party tries to attack or “push”, then the Chinese “pull” and vice
versa (Strutton and Pelton, 1997). Western relationship building, however, is based on
economic principles (Williamson, 1985) and networking in the West is virtually always
associated with commercial-based corporate-to-corporate relations and is essentially
formal (Luo, 2000).
According to Hofstede (1991), China scores high in the long-term orientation
dimension whereas Western countries such as the UK and the USA score low. It is not
surprising, therefore, that in the context of relationship building the Chinese have a
long-term orientation whereas Westerners have a short-term orientation (Styles and
Ambler, 2003). The third SCRR root facing Western buyers sourcing in China is
therefore related to differences in the way relationships are formed. Relationship
building in China is dominated by the forces of Guanxi and as such is informal, has a
long-term orientation and is based on the interplay of face and renqing, i.e. it occurs at a
personal level. In the West, the process of building a relationship has a short-term
orientation, is more formal and based on the interplay of competition and cooperation,
i.e. it occurs at a corporate rather than personal level.
Jia and Rutherford (2007) argue that these three Guanxi-related risk roots can be seen
as a subset of SCRR and hence have the potential to cause the failure of a partnership.
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In order to mitigate such risk, we explore the suitability of international inter-firm
learning and cultural adaptation as potential mitigating strategies against this cultural
subset of SCRR.
Mitigating strategies for SCRR
Khan and Burnes (2007) argue that although focus varies most approaches to managing
supply chain risk seem to fall within the boundaries of relationship management.
The approaches include: loyalty to existing suppliers (Mitchell, 1995), building strategic
alliances or partnerships with key suppliers (Zsidisin et al., 2000), and early supplier
involvement (Krause, 1999). Very few (Levinson and Asahi, 1995; Tsang, 1999) explicitly
propose international inter-firm learning or cultural adaptation as a mitigating strategy
against supply chain risk.
International inter-firm learning
Bessant et al. (2003) first proposed the idea of supply chain learning, which refers to
learning behaviours in an inter-firm context. Spekman et al. (2002) argue that supply
chains are a vehicle for gathering knowledge and learning, and learning in an
inter-firm context is affected by factors that are relationship specific such as the type of
relationship formed and its stage of development.
Powell (1998) claims that learning in technologically advanced industry is a
complex, multi-level process. It involves:
.
learning from and with partners under conditions of uncertainty;
.
learning about partners’ behaviour;
.
developing routines and norms that can mitigate the risks of opportunism; and
.
learning how to distribute newly acquired knowledge across different projects
and functions.
It has also been suggested by other authors (Spekman et al., 2002; Hallikas et al., 2005),
that inter-firm collaborative learning is a mechanism of risk management within the
supply chain.
International organizational learning literature provides some insights into
cross-cultural inter-firm relationships. Liu and Vince (1999) found that learning in an
intercultural context requires sensitivity to differences in cultural values and that
learning is a two-way process involving learning and change from both partners rather
than one partner imposing knowledge on the other.
Levinson and Asahi (1995) stress the importance of inter-organizational learning in
an international context by giving an example of a failed strategic alliance between Bell
Atlantic and TCI. They argue that there is an absence of inter-organizational learning
from the beginning to the end of the alliance. Finally, they identify four steps in
inter-organizational learning:
(1) becoming aware and identifying knowledge;
(2) transferring/interpreting new knowledge;
(3) using knowledge by adjusting behaviour to achieve-intended outcomes; and
(4) institutionalizing knowledge by reflecting on what is happening and adjusting
alliance behaviour.
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Simon’s (1991) observation that: [...] all learning takes place inside individual human
heads and organizations can learn only through their staff members, is echoed by
Tsang (1999) who claims that those companies that do not transfer managers to
oversee their China operations, and try to control operations from a distance limit the
extent of their learning. Tsang also argues that to elevate learning from an individual
to an organizational level, sharing and institutionalization of managerial experiences is
essential. The sharing of extra information among individuals also helps to articulate
the tacit knowledge they possess. He continues to contend that an obvious skill that
Western managers can learn from Chinese locals is that of cultivating (building)
Guanxi.
Cultural adaptation
Cultural adaptation involves interactions between culturally different individuals and
is defined by Francis (1991) as:
An attempt to elicit approval from members of a foreign culture by attempting to become
behaviourally more similar to members of that culture.
Boisot and Child (1999) argue that Western multinational corporations can absorb the
environmental complexity of doing business in China through enlisting the support of
local allies. This entails a greater degree of participation in local relational systems.
Salmi (2006) takes this a step further and emphasizes that social skills and Chinese
cultural knowledge are two key competencies essential for Western firms hoping to
develop trading relations in China.
Lin and Germain (1999) state that cultural adaptation in a dyadic relationship
involves adjustment by members of both cultures. This aligns with the literature on
international inter-firm learning, which suggests that learning is a two-way process
involving learning and change by both partners (Liu and Vince, 1999).
Koulikoff-Souviron and Harrison (2007) take the argument further and suggest that
the adaptation between a buyer and a supplier may range from unilateral (one partner
dominates) to reciprocal (a bilateral or mutual process).
It is apparent from the literature that cultural adaptation takes place between
individuals and that it occurs when individuals acquire an increasing level of fitness or
compatibility in the new cultural environment (Lin, 2004).
Building on the work of Walsh (1973), Lin (2004) proposes that there are three levels
of cultural adaptation: to understand, to adjust and to learn. First of all, foreign firms
need to understand another culture on its own terms. Second, cross-cultural adaptation
does not necessarily involve a change of a party’s fundamental cultural assumptions,
but only requires a level of adjustment necessary for smooth interaction. Third,
the highest level of adaptation occurs when a party makes a conscious effort to learn
from the other party; that is, to integrate elements of the other culture into one’s own.
The process of cultural adaptation shares many similarities with inter-firm learning.
The first two steps of Levinson and Asahi’s (1995) inter-firm learning process
(being aware of, identifying and interpreting cultural knowledge) align with the idea of
understanding the other culture, i.e. the first stage in Lin’s (2004) cultural adaptation
process. The third step in inter-firm learning (using cultural knowledge and adjusting
behaviour) equates to Lin’s adjust stage, which implies behavioural adjustment rather than
adjustment of cultural assumptions. And the fourth step (institutionalizing knowledge)
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certainly implies learning, i.e. the third stage in Lin’s process [...] to integrate
elements of the other’s culture into ones own. However, neither of these process models
describes what the cultural knowledge is that would be the input into the adaptation or
learning process.
Although inter-firm collaborative learning is proposed as a way of mitigating supply
chain risk (Spekman et al., 2002; Hallikas et al., 2005), none of the literature on inter-firm
learning specifically addresses risk associated with cultural differences. As it seems
logical that cultural adaptation offers itself as a mitigating strategy against SCRR
caused by cultural differences, we consider cultural adaptation to be a form of
international inter-firm learning.
Mutual benefits of cultural adaptation
In this work, the context of cultural adaptation is that of a close business relationship
rather than an arm’s length and an adversarial relationship. There are generally three
concepts describing close business relationships: strategic alliance, partnership and
obligational contractual relations. Partnership is the term most commonly used in the
supply chain management literature. Lambert et al. (1996) define partnership as:
A tailored business relationship based on mutual trust, openness, shared risk and a shared
reward that yields a competitive advantage, resulting in business performance greater than
would be achieved by the firms individually.
In the context of this research, the mutual benefits realised by both parties in a
buyer-supplier relationship will be related to partnership performance and, therefore,
it is appropriate to identify suitable measures of partnership performance.
Myhr (2001) proposes two measures of partnership performance: relationship
effectiveness and cost-reduction benefits. Both are considered perceptual measures:
(1) Relationship effectiveness refers to the degree to which partners find the
relationship to be productive and worthwhile. It is measured in terms of the
commitment of parties, their productiveness, reward to the parties, satisfaction
of parties and the increased level of supplier expertise.
(2) Cost-reduction benefits provide a measure of the degree to which the
business-to-business relationship has enabled the parties to generate benefit as
a result of reduced operational costs. It is measured in terms of end-product
manufacturing cost, coordination between parties and streamlined practice.
Measures focusing on the perceived degree of performance rather than exclusively
focusing on quantifiable outcomes such as total cost reduction or sales volume have
become increasingly popular in inter-organizational research (Geyskens et al., 1999;
Shamdasani and Sheth, 1995; Walton, 1996) due in part to the difficulty in comparing
quantitative measures across different inter-organizational relationships.
Myhr (2001) proposes cooperative sentiments (relationship commitment and trust)
and cooperative behaviours (flexible adaptation and collaboration) as intermediate
variables. However, these have been regarded by some authors (Walter et al., 2003;
Angerhofer and Angelides, 2006) as relationship performance (outcome) measures.
Walter et al. (2003) based on a review of relationship quality; propose that
commitment, trust and satisfaction are quality measurements. Generally, commitment
is described as a kind of lasting intention to build and maintain a long-term relationship.
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Satisfaction is defined as a positive affective state resulting from the appraisal of all
aspects of a firm’s working relationship with another.
Chen and Chen (2004) propose the concept of Guanxi quality, which is assessed by
the distance between the Guanxi partner located in the psychological Guanxi network
space and the centre of the space where “self” is located. It is [...] a neutral term
describing the subjective judgement made by the Guanxi parties regarding the current
state of their Guanxi (Chen and Chen, 2004). There are three circles which describe
Guanxi space that are also referred to as Guanxi bases: namely jia-ren (kinship),
shou-ren (familiar) and sheng-ren (stranger) Guanxi. Jia-ren is located in the inner circle,
shou-ren in the middle and sheng-ren in the outer circle. The more central the Guanxi
party in the Guanxi space, the better the Guanxi quality. Guanxi quality is an important
indicator for partnership success in China.
According to Angerhofer and Angelides (2006), many authors agree that a
performance measurement system in a supply chain context should use three types of
measures: resource, output and flexibility. Resource measures generally measure cost
and improve supply chain performance by driving cost reduction. Output measures
such as sales, profit, cycle time and customer-related measurements, measure the output
of a supply chain. Measures of flexibility measure the supply chain’s ability to cope with
volume and schedule variations from customers as well as suppliers.
Trust is a critical element in social exchange relations (Hallen et al., 1991) and has
been defined as the perception of confidence in the exchange partner’s reliability and
integrity (Morgan and Hunt, 1994). It is found that trust is a determinant of cooperative
behaviours such as flexibility and collaboration (Mohr and Spekman, 1994; Myhr, 2001;
Mello and Stank, 2005). The degree of flexible adaptation and collaboration in the
relationship are positively related to partnership performance with respect to
relationship effectiveness and cost-reduction benefits (Myhr, 2001).
Drawing on the literature, three key measures are tentatively proposed as indicators of
mutual benefit or partnership performance between a Western buyer and a Chinese
supplier. These include relationship effectiveness, relationship quality and cost-reduction
benefits. In a relationship with a Chinese firm Guanxi quality should be included as a key
indicator of relationship quality from the Chinese partner’s perspective and is therefore
grouped with relationship quality as a key measure of partnership performance. Figure 1
identifies the underlying determinants of partnership performance that could be included
in the measurement of each key measure.
Missing themes
Based on the literature review, we have identified two missing themes in the literature:
(1) The prior works of Levinson and Asahi (1995) propose inter-firm learning
process as the key to partnership success and Lin (2004) proposes cultural
adaptation to overcome difficulties facing Chinese-USA joint ventures caused by
cultural differences, but neither integrate cultural differences as the “knowledge”
input to the process nor do they explicitly propose inter-firm learning or cultural
adaptation as mitigating strategies against SCRR caused by cultural differences.
(2) Although a number of authors imply that adaptation, including cultural
adaptation, has a positive impact on partnership performance, they provide
no empirical evidence. Empirical work is needed to identify the causal
relationship between cultural adaptation and partnership performance.
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Development of a conceptual framework
In the development of a conceptual framework, we have adopted Lin’s (2004) cultural
adaptation process. This dynamic process includes three elements: to understand, to
adjust and to learn. In the context of this research, the three root cultural differences
identified (Jia and Rutherford, 2007) are the knowledge inputs or content of this
cultural adaptation process. From an international inter-firm learning perspective, the
root cultural differences are areas of learning.
Our conceptual model (Figure 2) shows cultural adaptation as a SCRR mitigation
strategy resulting in mutual benefits for both members of the partnership.
Our conceptual model describes the process of cultural adaptation, the cultural
knowledge input and the expected mutual benefits of successful adaptation. However,
to mitigate SCRR caused by cultural difference, this process of cultural adaptation
must take place during the relationship-building process between Western buyer and
Chinese supplier. To develop our model, further, we need to describe the evolving
nature of a cross-cultural relationship as it builds and matures over time. To achieve
this, first, we consider the literature that examines the relationship-evolving process
and second the notion of a hybrid culture, which develops at the interface between
organizations of different national culture.
A relationship-evolving process
According to Dwyer et al. (1987), relationships evolve through five general phases:
awareness,exploration, expansion, commitment and dissolution. Awarenessrefers to one
party’s recognition of another as a feasible exchange partner. Exploration refers to the
research and trial phase in relational exchange. Expansion refers to the continual increase
in benefits obtained by exchange partners and to their increasing interdependence.
Figure 1.
Key measures of
partnership performance
and their determinants
Relationship quality
(Walter et al., 2003)
[Guanxi Quality (Chen and
Chen, 2004)]
Cost reduction benefits
(Myhr, 2001)
Relationship effectiveness
(Myhr, 2001)
Manufacturing costs
(Myhr, 2001)
Coordination
(Myhr, 2001)
Streamlined practice
(Myhr, 2001)
Flexible adaptation
(Myhr, 2001;
Angerhofer and Angelides, 2006)
Collaboration
(Myhr, 2001)
Level of expertise
(Myhr, 2001)
Productiveness
(Myhr, 2001)
Reward
(Myhr, 2001)
Commitment
(Myhr, 2001; Walter et al., 2003)
Satisfaction
(Myhr, 2001; Walter et al., 2003)
Trust (Mohr and Spekman, 1994;
Myhr, 2001; Mello and Stank, 2005;
Walter et al., 2003)
Key measures of
partnership performance
Determinants
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relational risk
261
Commitment refers to an implicit pledge of relationship continuity between exchange
partners, and finally dissolution, the possibility of withdrawal or disengagement at any
point in the relationship development framework.
Leader-member exchange (LMX) theory proposes a relationship-evolving process
from a leadership perspective (Graen, 2003). High LMX refers to effective leadership;
leaders are able to exert considerable incremental influence on their workers and the
workers with their leaders. In contrast, low LMX is characterized by unidirectional
downward influence, contractual behaviour, formal role-defined relations and loosely
coupled goals (Graen and Wakabayashi, 1994). They argue that the relationship
between leader and members is a process of reciprocal influence and [...] the reciprocal
investment process between leaders and selected followers resembles a partnership.
This process of reciprocal influence is also evident in asymmetric buyer-supplier
relationships (Cox, 2004).
Graen and Wakabayashi (1994) further propose a life cycle model for the
development of mature leadership relationships (high LMX); the life cycle model
defines three stages: stranger, described as a “cash and carry” and immediate exchange
relationship; acquaintance, in which increased exchanges occur between leaders and
followers and partner, characterized by highly developed mutual exchange, long-term
orientation and relying on loyalty and support.
It seems not unreasonable to suggest that organizations at the “stranger” stage of a
relationship might be in a phase of exploration as described by Dwyer et al. (1987).
At the “acquaintance” stage the relationship might be in a phase of expansion with
growing interdependency and finally, we might expect a relationship that has reached
the “partner” stage to be in a phase of growing commitment.
In the context of this research, Dwyer et al.’s phase of dissolution can be discounted for
two reasons: first, based on Iyer’s (2002) adaptation of Dwyer’s model, dissolution can
occur at any point in the evolution of the partnership and, therefore, need not be considered
a separate phase and second; the focus of this research is on partnership creation, not
dissolution. We also argue that the phase of awareness is not relevant to this research as it
Figure 2.
Cultural adaptation
process and mutual
benefits
Mutual benefits
Cost reduction
benefits
Relationship
Effectiveness
Cultural adaptation as a supply chain
relational risk mitigation strategy
Relationship quality
[guanxi quality]
Cultural
differences
Understand
Adjust
Learn
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262
is unlikely that any cultural adaptation will be evident in the initial stages of identifying a
potential partner.
Based on the life cycle of leadership maturity model of Graen and Wakabayashi
(1994) and the core phases of Dwyer et al.’s (1987) model, we present a three-stage
relationship-evolving process that will later be combined with our model of cultural
adaptation:
(1) Stranger (exploration). The initial stage of relational exchange; the parties are at
an exploratory stage in their evolving relationship, but are still considered
strangers.
(2) Acquaintance (expansion). The relationship expands resulting in increased
interdependency and growing mutual benefit.
(3) Partner (commitment). The relationship matures and realises the benefits of a
strategic partnership characterised by trust and commitment.
At each stage in the relationship-evolving process the individuals at the buyer-supplier
interface will engage in and experience varying degrees of cultural adaptation.
Hybrid cultural models
Wilson (1995) builds on Dwyer et al.’s (1987) five-stage framework and introduces the
concept of a hybrid relationship derived from the IMP Group’s concept of atmosphere,
which is defined as [...] various combinations of environmental, company-specific and
interaction process characteristics and is the product of the relationship (Hakansson,
1982). The hybrid culture is a composite of the cultures of the buying and selling firms,
which straddles the space between buyers and suppliers with a unique blend of the
cultures of the firms (Wilson, 1995).
In the context of international joint venture, Graen et al. (2004) propose a
“third culture bonds” model, defining the third culture as [...] a culture in which the
different cultural backgrounds of the organization or group members are synthesized
into a new culture that is acceptable to members. The third culture is a mix of the
business partner’s cultures whereby the partners become cultural “insiders”; however,
when two cross-cultural business partners remain “strangers” to each other then the
third culture does not develop.
Roper and Weymes (2007) draw together three phenomena: a loss of legitimacy of
Western business practices which emphasise individual competition in a market-based
society; an increase in the demand for corporate social responsibility and a rebuilding of
social capital; and the emergence of Chinese multinational corporations, which retain the
ancient values to dominate in a global society. They propose that the East and West can
develop hybrid models of business that can build social capital by incorporating the
Confucian philosophical values to the Western concept of social well-being and social
capital. This is especially valid for international partnership.
Although the idea of a hybrid or mixed culture is not new, the literature does not
describe the process of transformation from cultural stranger to cultural insider.
Nevertheless, if we consider Francis’s (1991) definition of cultural adaptation,
the implication is that a hybrid culture forms as a result of the behavioural changes
of interacting individuals from each organization. Graen and Hui (1996) describe these
individuals as trans-culturals [...] those who grow beyond their own cultural
Supply chain
relational risk
263
socialization so that they can understand different cultures with minimal bias and make
valid cross-cultural judgements.
Our conceptual model of cultural adaptation (Figure 3) presents cultural adaptation
as a SCRR mitigation strategy leading to a mutually beneficial partnership between a
buyer and a supplier of different national culture. We now extend this model recognising
that cultural adaptation between individuals operating at the buyer-supplier interface
occurs during the relationship-building process and that successful cultural adaptation
will lead to a hybrid cultural interface (HCI), which we define as:
A mutually beneficial composite culture that exists at the interface between a buyer and a
supplier of different national cultures and that is the result of the cultural adaptation of those
individuals who operate at the interface.
Taking this concept of an HCI, we present a conceptual process model (Figure 3) which
describes its creation by combining our conceptual model of cultural adaptation based
on Lin’s (2004) cultural adaptation process with the three-stage relationship building
model adapted from Dwyer et al. (1987), Graen and Wakabayashi (1994) and Iyer
(2002). This conceptual process model describes the creation of the HCI.
As a relationship evolves from stranger to partner, individuals that operate at the
organizational interface engage in the cultural adaptation process, this process involves
cultural-behavioural convergence as members of each culture [...] attempt to become
behaviourally more similar to members of the other culture (Francis, 1991), creating an
HCI that has mutual benefit for the supply chain partnership. The cultural behavioural
convergence of the interface is only possible if the individuals at the interface have the
capacity to become “trans-culturals”, i.e. to grow beyond their own cultural socialization.
The three cultural differences identified (Jia and Rutherford, 2007) as sources of SCRR
are the knowledge inputs into the cultural adaptation process.
Figure 3.
A conceptual process
model for the creation of
the hybrid cultural
Cultural behavioural convergence
Stranger
(exploration)
Acquaintance
(expansion)
Partner
(commitment)
Mutual benefits
Age of relationship
Understand
Understand
Understand
Adjust
Adjust
Adjust
Learn
Learn
Learn
Hybrid cultural interface
Risk roots of
cultural difference
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We expect the HCI to be shaped by the cultural adaptation behaviours of individuals of
both parties engaged in an evolving relationship. The actual nature of the evolving HCI
will be revealed during field research.
Conclusion and contributions
In this paper, we have identified two missing themes in the supply chain risk literature.
First, the cultural adaptation process between Western and Chinese firms is unclear in
the extant literature because previous studies separate the process of cultural adaptation
from adaptation content, i.e. cultural differences. We propose cultural adaptation as a
mitigating strategy against SCRR caused by cultural differences between China and the
West. This is because cultural adaptation directly addresses the problem of cultural
differences faced by firms wishing to establish international cross-cultural partnerships.
Second, although a number of authors imply that adaptation, including cultural
adaptation, has a positive impact on partnership performance, none provide any
empirical evidence. In this research, we have identified key measures and their
determinants for evaluating partnership performance (mutual benefit) that will be used
in future research to gather empirical evidence to determine the causal relationship
between cultural adaptation and partnership performance.
To address these missing themes, we develop a conceptual process model of
relationship building, which incorporates cultural adaptation as a SCRR mitigation
strategy leading to a mutually beneficial partnership featured by a HCI. The HCI concept
aligns with and builds on previous hybrid cultural models; HCI is the outcome of cultural
adaptation in the context of international cross-cultural SCRR management.
This paper contributes to the SCRM literature by adding a relational-cultural
dimension. Cultural adaptation is proposed as a mitigation strategy against the three risk
roots of cultural difference, which form a subset of SCRR. Since cultural adaptation is
considered a form of international inter-firm learning, this paper will also contribute to
partnership or strategic alliances learning literature by linkinglearning and performance.
This paper lays the foundation for future field research, which will reveal the
mechanisms of cultural adaptation at each stage in the relationship-evolving process and
also its outcome, i.e. the nature of the HCI and the causal relationship between cultural
adaptation and partnership performance. Ultimately, this research will benefit Western
buyers and their Chinese suppliers by increasing the awareness of cultural differences
and by providing a framework for cultural adaptation and a set of partnership
performance measures. The application of particular mechanisms of cultural adaptation
at each stage in the relationship-building process may help organizations develop,
reevaluate and revise role definition more effectively. An understanding of cultural
adaptation in the context of defined cultural differences may help mitigate SCRR
between Western buyers and Chinese suppliers by reducing interfacial cultural tensions,
and by improving trust and commitment between members. This research has the
potential to benefit many cross-cultural partnerships.
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Further reading
Xin Hua Dictionary (2004), 10th ed., Commercial Press (Shang Wu Yin Shu Guan), Shanghai
(in Chinese).
About the authors
Fu Jia is a PhD candidate at Cranfield School of Management, UK. His research interests are in
global sourcing, supply chain partnerships and logistics innovation. He has previous work
experience in the 3PL sector in China. He holds a BEng in Mechanical Engineering and an MBA
from Birmingham Business School, UK.
Christine Rutherford is a Lecturer in the School of Management at Cranfield University, UK.
Her research interests include supply chain risk and resilience as well as demand forecasting and
inventory systems focusing on slow moving items. She teaches extensively on MBA and MSC
programmes and directs a number of executive development courses. She has worked in the
chemical industry and obtained a PhD in Physical Chemistry from Hull University. Prior to
joining Cranfield, she held a commission with the Royal Air Force as a supply officer working
ultimately as a tri-service logistics consultant. Christine Rutherford is the corresponding author
and can be contacted at: chris.rutherford@cranfield.ac.uk
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