Supplier partnership and cost performance: The moderating roles of specific investments and environmental uncertainty

Abstract

Abstract Drawing on the perspective of transaction cost economics (TCE), we explain the operating contexts in which supplier partnership is likely to be an effective strategy to reduce operational costs in the manufacturing industry. We posit that supplier partnership, which falls in the category of hybrid governance, improves the operational cost performance of manufacturers and that its effectiveness is contingent on specific investments. We also posit that environmental uncertainty does not interact with specific investments to strengthen the effectiveness of supplier partnership. We apply structural equation modeling (SEM) to empirically test the model using data from 175 Hong Kong electronics manufacturers. The results show that supplier partnership is positively and significantly related to operational cost performance. We also find that the relationship between supplier partnership and operational cost performance is strengthened by specific investments. More importantly, the results reveal that the relationship between supplier partnership and operational cost performance is not strengthened by: (1) environmental uncertainty and (2) the three-way interaction among supplier partnership, specific investments, and environmental uncertainty. Our findings provide theoretical and practical insights for selecting an appropriate mode of governance structure.