The impact of internal integration and relationship commitment on external integration

Abstract

Supply chain integration (SCI) among internal functions within a company, and external trading partners within a supply chain, has received increasing attention from academicians and practitioners in recent years. SCI consists of internal integration of different functions within a company and external integration with trading partners. While both supply chain internal and external integration have been studied extensively, our understanding of what influences SCI and the relationship between internal and external integration is still very limited. This paper argues that external integration with customers and suppliers is simultaneously influenced by internal integration and relationship commitment to customers and suppliers. Internal integration enables external integration because organizations must first develop internal integration capabilities through system-, data-, and process-integration, before they can engage in meaningful external integration. At the same time, before external integration can be successfully implemented, organizations must have a willingness to integrate with external supply chain partners, which is demonstrated by their relationship commitment. We propose and test a model that specifies the relationship between internal integration, relationship commitment, and external integration, using data collected from manufacturing firms in China. The results show that internal integration and relationship commitment improve external integration independently, and their interactive effect on external integration is not significant. However, internal integration has a much greater impact on external integration than relationship commitment. We also examine the model for companies with different ownerships, and the results indicate that for Chinese controlled companies where there is a strong collectivism culture and more reliance on “ Guanxi” (relationship), relationship commitment has a significant impact on external integration with suppliers and customers. This is in stark contrast to foreign controlled companies, characterized by a more individualistic culture and more reliance on technological capabilities, where no significant relationship between relationship commitment and external integration could be found. The model is also tested across different industries and different regions in China, providing useful insights for Chinese companies in particular. This study makes significant contributions to the SCI literature by simultaneously studying the effects of internal integration and relationship commitment on external integration, and providing several future research directions.