Effect of Environmental Dynamism on Relational Governance in Manufacturer-Supplier Relationships: A Contingency Framework and an Empirical Test

Abstract

The effect of dynamism in the downstream (i.e., customer and competitive) environment on the manner in which manufacturers manage their upstream (i.e., supplier) relationships is not well understood in the literature. While some prior studies suggest that manufacturers will adopt relational governance with suppliers in response to dynamism in the downstream environment, other studies suggest that manufacturers will avoid relational governance with suppliers when faced with environmental dynamism. Drawing from the literature on interparty learning, the authors develop a conceptual framework wherein the validating conditions for each conclusion are identified. Results from a survey of 221 manufacturing organizations show that in dynamic environments, manufacturers adopt (avoid) relational governance with suppliers under two conditions: (1) when manufacturer collaborative belief is high (low) and (2) when supplier knowledge is high (low). The results are discussed in terms of their managerial and future research implications.