Tripartite role of communications in channel relationships: Mitigating exchange hazards, reducing opportunism, and curtailing its ill effects on relationship performance

Highlights

• Instrumental and social communications mitigate opportunism through two different mechanisms: Informational and Relational

• Uncover differential moderating effects of two types of communication on opportunism under different channel conditions.

• Social communication is an effective way to revive opportunistic channel relationships and enhance channel performance.

• Integrated channel communication perspective and Transaction Cost Economics for effectively managing channel relationships.

Abstract

Mitigating channel members' opportunism is critical for supplier firms to maintain superior channel relationships and sustain relationship performance. Research in marketing channels suggests that supplier-channel member communication is vital for reducing information asymmetry and developing relational bonds in channel relationships. Building on that, in this research, we integrate information asymmetry and relationship-based views to articulate how communication, directly and indirectly, influences channel members' opportunism and curtail its ill effects on relationship performance. Based on the matched data from 239 supplier-distributor dyads, we find that communications (instrumental and social) have tripartite effects on channel outcomes, i.e., a) it directly reduces channel members' opportunism, b) weakens (negatively moderate) the positive effects of exchange hazards (antecedents) on opportunism and c) curtail the ill effects of opportunism on relationship performance. Additionally, we find that instrumental and social communications can have nuanced effects on channel members' opportunism. We provide newer insight into the role of communications in managing channel outcomes and present important theoretical and managerial implications.

Introduction

Macneil (1980) argued that all interfirm exchanges occur within a social context that involves human interactions and a factor that is focal to all human interaction is communication. Therefore, due to the very nature of distribution channel exchanges, supplier-channel member communication must be a critical factor in channel relationships. Described as “the glue that holds together a channel of distribution” (Mohr & Nevin, 1990, p. 36), communication is found to play a vital role in maintaining superior relationships and determining channel outcomes (Anderson & Narus, 1990; Dwyer, Schurr, & Oh, 1987; Hakansson, 1982; Joshi, 2009; Mason & Leek, 2012; Mohr & Spekman, 1994; Möller, 2013; Palmatier, Dant, Grewal, & Evans, 2006; Paulraj, Lado, & Chen, 2008). A substantial body of literature in the Industrial Marketing and Purchasing (IMP) group also suggest that communications could be one of the key strategies for building effective relationships in distribution channels (Ford, 1980; Gadde & Snehota, 2019; Mason & Leek, 2012; Möller, 2013; Möller & Halinen, 2018; Snehota & Hakansson, 1995). For example, the Nesprint and Unify partner portals developed by Nestle and Unilever respectively. Such portals help in streamlining order tracking and order processing and training requirements of partner firms, besides facilitating enhanced performance outcomes and long-term productive relationships.

An analysis of relationship marketing literature and the IMP research community's interaction approach suggests that communication can impact channel outcomes through two ways, i.e., enhancing the positive relationship variables (Ford, 1980; Möller & Halinen, 2000; Palmatier et al., 2006; Snehota and Hakansson, 1995) and mitigating the negative relationship variables (Halinen & Tähtinen, 2002; Huo, Wang, and Tian, 2016; Kang, 2014). For example, communications can help in building trust and confidence in the supplier (Morgan & Hunt, 1994; Snehota and Hakansson, 1995), building market intelligence and capability for the supplier (Chen, Li, & Arnold, 2013; Kohtamäki, Rabetino, & Möller, 2018), developing social and relational bond with channel members (Anderson & Narus, 1999; Turnbull, Ford, & Cunningham, 1996; Ulaga, 2003), fostering their relational behavior (Leonidou, Samiee, Aykol, & Talias, 2014), and enhancing cooperation (Mohr, Fisher, & Nevin, 1996). Additionally, communications can also facilitate superior channel outcomes by curtailing negative relationship consequences (Huo, Wang, and Tian, 2016) such as, limiting information asymmetry (Tong & Crosno, 2016), reducing role ambiguity (Joshi, 2009), mitigating betrayal intention (Leonidou, Aykol, Fotiadis, & Christodoulides, 2018), resolving conflicts (Hung & Lin, 2013), and facilitating trouble-free exit from the relationships (Halinen & Tähtinen, 2002).

Despite extensive research on the influence of communications on channel relationship consequences, empirical research on its influence on channel members' opportunistic behavior has not progressed. For example, in our extensive literature review, we found only two empirical articles that examined the effects of communication on opportunism (see Huo, Wang, and Tian, 2016; Nunlee, 2005). Moreover, these studies do not discuss the potential of communication in mitigating opportunism and included it just as a peripheral variable in their research model. Furthermore, conceptual studies on the topic in the IMP research domain and communications literature have also been sparse (few notable studies are: (Ellis & Hopkinson, 2010; Maestrini, Maccarrone, Caniato, & Luzzini, 2018; Mason & Leek, 2012; Murphy & Sashi, 2018)). Therefore, in the current study, we address this critical research gap by examining the (direct as well as indirect) influence of supplier's communication on channel members' opportunism. In doing so, we align this study with the second stream of research on the impact of communications' on mitigating negative relationship variables. We focus on channel members' opportunism because, among other threats, opportunism has been recognized as one of the most adverse relationship destroying behaviors in distribution channels (Samaha, Palmatier, & Dant, 2011; Trada & Goyal, 2017).

The literature on channel communications suggests that a supplier's communication could affect its channel members' opportunism through two mechanisms. First mechanism, based on the information asymmetry view (Sheng, Brown, Nicholson, & Poppox, 2006; Tong & Crosno, 2016) refers to the rationale that enhanced instrumental communication (goal and task-related) by suppliers can assist in enhancing market understanding, clarifying roles and responsibilities, reducing misunderstanding, mitigating betrayal intention, and improving channel coordination (Chen et al., 2013; Hung & Lin, 2013; Johnston, Khalil, Jain, & Cheng, 2012; Murphy & Sashi, 2018), thereby reducing channel members' opportunism. Second mechanism, based on a relational view (Dyer & Singh, 1998; Lambe, Wittmann, & Spekman, 2001), suggests that suppliers' social communication can develop strong personal tie that can engender greater flexibility (Hakansson, 1982; Turnbull et al., 1996), develop social norms (Sheng et al., 2006), and transcend channel members' behaviors in adapting to uncertain situations (Hakansson, 1982; Ring and Van de Ven, 1994). This can result in stabilizing channel relationships and mitigating channel members' opportunistic behavior.

In the current study, we integrate the above two mechanisms to examine the direct and indirect influence of communication on channel members' opportunism and how it curtails the ill effects of opportunism on relationship performance. Regarding communication as a key mean for sharing market intelligence (Tong & Crosno, 2016), and as a relational competency (Paulraj et al., 2008), we develop a research model and set of hypotheses that empirically examine the role of communications in mitigating channel members' opportunism within the context of distribution relationships (Fig. A.1). We test our hypotheses using a matched sample of 239 supplier-distributor dyads from the Indian pharmaceutical industry. Our results demonstrate that effective supplier communication can indeed reduce relationship damaging impact of channel members' opportunism through a tripartite effects, i.e., 1) directly reduces channel members' opportunism, 2) weakens (moderate) the link between exchange hazards (antecedents) and channel members' opportunism, and 3) curtail (moderate) the ill effect of channel member opportunism on the relationship performance.

We make the following key contributions to literature. First, we explicitly reveal the new social deterrents of opportunistic behavior i.e., instrumental and social communications in distribution channels and contribute to the channel relationships and opportunism literature. Second, we contribute to interfirm communications literature by highlighting the nuanced role of different types of communication content in managing channel member behavior and the relationship. Third, we highlight the role of two mechanisms based on information asymmetry and relational competency view in interfirm exchanges and provide newer insights on the ways to mitigate opportunism under different channel circumstances. Fourth, we enlarge the scope of channel governance by providing the process-based approach to managing channel members' behavior. Finally, we contribute to interfirm relationships literature by synthesizing behavioral and economic perspective, i.e., transaction cost economics (TCE) and channel communications in a single conceptual framework for effective management of channel relationships.