Information technology, partnership capabilities, and co-created value in international subcontracting relationships

Transcription

1 Information technology, partnership capabilities, and co-created value in international subcontracting relationships Kuo-Hsiung Chang, Department of International Business, Tunghai University, No. 1727, section 4, Taiwan Boulevard, Taichung City, Taiwan, R.O.C. 1. Introduction Information technology (IT), which is among a firm s resources and is embedded within an organization, can effectively facilitate information collection and use (Bharadwaj, 2000; Mata, Fuerst, & Barney, 1995; Powell, 1997; Tippins & Sohi, 2003). Academicians and practitioners have devoted increasing attention to possible IT enhancement of firm performance (Bharadwaj 2000; Byrd, Lewis, & Bryan, 2006; Clemons, 1986; Mata, Furest, & Barney, 1995; Porter & Millar, 1985; Powell, 1997; Wu, Yeniyurt, Kim, & Cavusgil, 2006); however, previous research has seldom explored the relationship between IT and co-created value in interorganizational relationships (Dyer, 1997; Madhok & Tallman, 1998; Wu & Cavusgil, 2006; Zajaz & Olsen, 1993). Co-created value refers to the realization of dyadic value creation in which at least two partners work collectively to realize outcomes (Jap, 1999). For example, international outsourcing has been considered a strategic means for U.S.-based firms 1

2 to select world-class suppliers and effectively minimize costs (Mol, Pauwels, Matthyssens & Quintens, 2004). In the exchange relationships between mature U.S.-based original equipment manufacturers (OEM; e.g., Apple and HP) and its suppliers, OEM suppliers often make IT-related investments that cater to the requirements of an international buyer (Bharadwaj, 2000; Clemons, 1986; Clemons & Row, 1993; Kang, Mahoney, & Tan, 2009; Rokkan, Heide, & Wathne, 2003). Apple and HP, whose technological and market information is superior to that of Taiwan s OEM suppliers (e.g., Foxconn, Quanta, Compal, and Wistron), must regularly visit their OEM suppliers, screen their production facilities and logistics, and assist them in improving their overall production quality and efficiency because international buyers are responsible for their product s quality (Ernst, 2000). In the process of qualifying a HP (or Apple) supplier, OEM suppliers learned how to improve their production quality and input procurement to cut costs, and expedite product development cycles (Ernst, 2000). Therefore, by serving top-tier international buyers, OEM supplier can develop and upgrade their capabilities that enable them to secure profitable orders from their buyers and enable their international buyer to minimize costs effectively and gain more competitive advantage in the marketplace (Kang, Mahoney, & Tan, 2009). Thus, international buyers and suppliers jointly increased the profits shared between partners and jointly gained benefits that enable them to compete more 2

3 effectively in the marketplace. The key research question is how IT can enhance co-created value in interorganizational relationship. The objectives of this study were numerous. First, we explored two types of IT-related investments: dedicated IT assets and IT alignment (Byrd, Lewis, & Bryan, 2006; Seggie, Kim, & Cavugil, 2006; Wu & Cavusgil, 2006; Wu, Yeniyurt, Kim, & Cavusgil, 2006). IT-related investments can be viewed as interfirm relationship-specific assets (RSI) that are specialized in conjunction with partner assets in inter-organizational relationships (Bharadwaj, 2000; Clemons, 1986; Clemons & Row, 1993). For example, HP and Apple typically require Taiwan s contract manufacturers (e.g., Quanta, Foxconn, Compal, and Wistron) to invest in unique facilities, including: IT software, hardware, and electronic data exchange systems. This study defines dedicated IT assets as the extent to which a supplier invests in IT software and hardware that are dedicated to this focal buyer in international subcontracting relationships, whereas IT alignment refers to the extent to which a supplier uses its IT system to develop relationship-specific interaction processes that are dedicated to serving the OEM and reflects the degree of IT embeddedness across interorganizational borders (Powell, 1997). Dyer and Singh (1998) suggest that a firm s critical resources may span firm boundaries and be embedded in interfirm resources and routines, and that firms should specialize in 3

4 partner relationships through interfirm relationship-specific assets to create competitive advantage. Thus, IT-related investments can be viewed as firm resources. When resources cross the organizational boundaries, IT can be regarded as an interfirm relationship-specific asset (Dyer & Singh, 1998). Second, previous studies have examined the IT and firm performance relationship, arguing that IT, from a resource-based view (RBV), does not guarantee strong firm performance (Bharadwaj, 2000; Byrd, Lewis, & Bryan, 2006; Mata, Fuerst, & Barney, 1995; Neo, 1988; Tippins & Sohi, 2003). Therefore, this study proposes that partnership capabilities mediate the IT-related investment effects on the co-created value. In this study, partnership capabilities refers to joint abilities of partner to repeatedly perform specific tasks that are related to inter-firm knowledge-sharing routine and joint action to co-created value (Schmid & Schuring, 2003; Teece, Pisano, & Shuen; 1997). This work conceptualizes a partnership capability, which consists of three dimensions: information exchange, relationship-specific knowledge (RSK) stores, and joint action. These three dimensions were chosen because they represent all of the critical activities involved in the collaboration-specific processes. Information exchange has been defined as the ability of a firm to share knowledge with its partners in an effective and efficient manner (Wu, Yeniyurt, Kim, & Cavusgil, 2006). RSK stores refer to the amount of 4

5 stored relationship-specific information or experience an organization possesses regarding a particular inter-organizational relationship phenomenon (Menguc & Auh, 2006). Finally, joint action is the extent to which a supplier and its buyer work together toward their common goals and address crucial relationship issues (Heide & John, 1990; Subramani & Vernkatraman, 2003). Each of the three dimensions reflects an ability to perform inter-organizational activities that are required in co-creation value. In addition, they emphasize the dynamic nature of partnership capabilities that enable two partners to respond to competitive environmental change. Third, this study draws from both the RBV (Barney, 1991; Barney, Wright, & Ketchen, 2001; Grant, 1991; Zhauang & Lederer, 2006) and dynamic capability (Menguc & Auh, 2006, Teece, Pisano, & Shuen, 1997) literature, and proposes that IT-related investments (i.e., dedicated IT assets and IT alignment) be viewed as firm resources that enhance partnership capabilities, in turn co-creating value. We examined the link between IT-related investments and partnership capabilities. Therefore, we propose that partnership capabilities play a catalytic role in transforming IT-related investments into co-created value. Finally, this study proposes an explanation for co-created IT value in the international subcontracting relationships context. Previous international outsourcing literature focuses on U.S. and European-based buyer behavior (Mol, Pauwels, 5

6 Matthyssens & Quintens, 2004), but largely ignores the supplier behavior of Pacific Rim countrues (Mol, Pauwels, Matthyssens, & Quintens, 2004). International subcontracting relationships are unique and often characterized by considerable power asymmetries. Based on the business practice observation (Kang, Mahoney, & Tan, 2009) of some international buyer-oem supplier relationships, powerful buyers, possessing high bargaining power, often require weak suppliers to make significant relationship-specific IT-related investments to improve coordination between partners (Chang & Gotcher, 2007); however, the OEM suppliers do not receive a reciprocal commitment from the buyer. For example, HP and Apple required its suppliers to adopt just-in-time (JIT) business systems and prepare for at least 3 months of buffering in stock. However, Taiwan OEM supplier did not receive any guarantee on purchasing volumes of the final product because of high demand uncertainty (Kang, Mahoney & Tan, 2009). In addition, the international buyers do cancel orders occasionally, which might present OEM suppliers with unexpected loss (Kang, Mahoney, & Tan, 2009). According to transaction cost economics (TCEs), unilateral relationship-specific IT-related investments without safeguards were interpreted as a poor managerial decision (Williamson, 1985). This raises the question of some weak OEM suppliers are willing to make unilateral specific IT-related investments, that place them in a risky bargaining position (Kang, Mahoney, & Tan, 2009). We argue 6

7 that a weak OEM supplier would be willing to make unilateral specific IT-related investments, if the supplier anticipates that IT-related investments can enhance partnership capabilities, in turn, co-creating value. In this study, we sought to enhance the understanding of IT co-created value through partnership capabilities in asymmetric Taiwanese supplier-international buyer relationships in IT industries. 2. Literature review 2.1. IT and resource-based view The RBV considers a firm to be an idiosyncratic bundle of resources. Valuable, rare, inimitable, and non-substitutable resources, according to the RBV, can be used to create and sustain competitive advantage (Barney, 1991; Barney, Wright, & Ketchen, 2001; Grant, 1991). IT is a resource that can be embedded in an organization. The RBV perspective maintains that IT cannot directly create a competitive advantage because competitors can imitate and acquire IT (Clemons & Row, 1991; Mata, Fuerst, & Barney, 1995; Tippins & Sohi, 2003). Empirical evidence shows that IT might not constitute a competitive advantage and that no meaningful relationship exists between IT and firm performance (Clemons & Row, 1993; Mata, Fuerst, & Barney, 1995; Tippins & Sohi, 2003) Resource-based view in the inter-organizational context 7

8 A firm s traditional RBV focuses on resources within the firm; however, this perspective can extend to inter-organizational relationships (Dyer, 1997; Dyer & Ernst, 1998). Dyer and Singh (1998) extend the RBV to explain how competitive advantage is achieved in inter-organizational settings. According to Dyer and Singh (1998), resources can span an organization s boundaries and be embedded within inter-organizational collaborative processes. They argued that arm s length market relationships have four essential characteristics: nonspecific asset investments, minimal information exchange, separable technological systems within each firm, and low investment in governance mechanism (Dyer & Singh, 1998). To create a competitive advantage, Dyer and Singh (1998) proposed that firm should move away from arm s length market relationships and specialize in relationships with partners through inter-firm relationship-specific assets and knowledge-sharing routines. In an inter-organizational relationship, IT is an idiosyncratic investment that can facilitate inter-organizational information exchange and improve coordination between firms. For example, the Internet and supply chain management offer scheduling solutions for inter-firm collaboration in manufacturing industries (Wu, Yeniyurt, Kim, & Cavusgil, 2006). Therefore, IT-related investments can be viewed as relationship-specific resources in inter-organizational relationships. 8

9 2.3.Dynamic-capability perspective and partnership capabilities Resources are different from capabilities, which refer to a firm s capacity to deploy resources, usually in combination, with organizational processes, to achieve a desired end (Amit & Schoemaker, 1993). Dynamic capabilities have been defined as the firm s ability to integrate, build, and re-configure internal and external competencies to address rapidly changing environments (Teece, Pisano, & Shuen, 1997:515). In a volatile environment, a firm must be consistently more effectively adapted than its rivals and adopt, integrate, and reconfigure external and internal resources to adapt change. Such firms must simultaneously excel at selecting resource and developing capability (Amit & Schoemaker, 1993). A firm s capabilities can generate only economic rent when other resources are actually acquired. The logic is that the ability to manage resource flows to create valuable combinations might be a meta-capability (Madhok & Tallman, 1998). Partnership capabilities reflect a firm s ability to integrate and reconfigure existing resources and internalize external resources to match rapidly changing environments. Thus, partnership capabilities are relationship-specific because they are embedded in partnerships and their processes. In international subcontracting relationships, IT-related investment and partnership capabilities can be combined with partner s resources to create a competitive advantage. Because of this embeddedness, partnership capabilities cannot easily be transferred from one partnership to another. 9

10 According to the RBV and dynamic-capability perspective, this study proposes that partnership capabilities are the transformational capabilities that convert IT advantages into co-created value (Blyler & Coff, 2003). 3. Conceptual model and research hypotheses This work proposes a conceptual framework consisting of IT-related investments, partnership capabilities, and co-created value creation, depicted in Figure 1. Firm resources according to the RBV, lead to capabilities, and capabilities influence a firm s performance (Barney, 1991; Wu & Cavusgil, 2006). Dyer and Singh (1998) extend the RBV to explain how competitive advantage is achieved in inter-organizational settings. This study proposes that IT-related investments (resources) can strengthen partnership capabilities (capabilities), which in turn facilitate co-created value creation, based on the RBV (Barney, 1991; Bharadwaj, 2000), the dynamic-capability perspective (Teece, Pisano, & Shuen, 1997), and the relational view of inter-organizational competitive advantage (Dyer & Singh, 1998). Figure 1 insert here. 3.1.IT-related investments This study suggests that relationship-specific IT-related investments in the 10

11 international subcontracting context can be analogously conceptualized as two- dimension: dedicated IT assets and IT alignment. Dedicated IT assets are the extent to which a supplier invests IT software and hardware dedicated to focal buyers in the international subcontracting relationships (Subramani & Vernkatraman, 2003). The IT software and hardware used in international subcontracting context includes: billing, EDI, materials procurement, manufacturing scheduling, logistic processes, and shipping procedures. Dedicated IT assets can be viewed as a critical resource because they are relationship-specific asset investments (Chang & Gother, 2007; Dyer & Singh, 1998). Therefore, dedicated IT assets provide the basis for information exchange, RSK stores, and joint action. IT alignment in the international subcontracting partnership context requires suppliers and international buyers to align their relationship-specific business processes to increase their efficiency level (Celly, Spekman, & Kamauff, 1999; Subramani & Vernkatrama, 2003). A highly specialized supplier-it alignment suits specific buyers, but has limited value in other exchanges, reflecting highly specialized routines. As an intangible resource, IT alignment can be considered an outside-in process (Day, 1994) that helps partners achieve a joint competitive advantage. IT embedded in inter-organizational processes and routines is, most likely to deploy IT alignment uniquely in inter-organizational relationships, thereby enhancing 11

12 heterogeneity and immobility to co-created value. Therefore, IT alignment provides the basis for information exchange, RSK stores, and joint action. 3.2.Partnership capabilities This study proposes that partnership capabilities are regular interfirm interaction patterns consisting of three dimensions: information exchange, RSK stores, and joint action. These three dimensions were chosen because they represent essential joint ability enhancement activities. Each of the three dimensions reflects information sharing and joint action requirements in international subcontracting relationships. The dynamic capability perspective (Teece, Pisano, & Shuen, 1997) also insures that partnership capabilities are dynamic, reflecting the joint ability of the two partners to share information and renew joint competences to achieve congruence with a changing environment (Shi, Zou, & Cavusgil, 2004; Tippins & Sohi, 2003). Partnership capabilities emerge by exchanging information and RSK stores across organizational borders, and are associated with the routine development of joint action (Grant, 1991; Teece, Pisano, & Shuen, 1997). The field interviews with supplier sales directors that were conducted in this study also confirms this concept. Partnership capabilities, embedded within the inter-organizational collaborative process, are more difficult to imitate and are catalysts in transforming IT-related investments into 12

13 co-created value. 3.3.Information exchange Two-party information exchange allows partners who posses different information to become knowledge sources and recipients (Selnes & Sallis, 2003). Such knowledge, in the international subcontracting relationship context, includes: end-users information of international buyers that is related to needs, preferences, and buying behaviors, as well as technological and focal product design information of contract manufacturers. Effective information technology linking organizational systems encompasses the Internet, supply chain management, electronic data interchanges (EDIs), software, and related technologies (Scott, 2000). Contract suppliers, in the international subcontracting relationship context, transfer design schematics, inventory data, and production plans by using IT (e.g., and EDI).Conversely, international buyers use IT to evaluate supplier production plans, inventory data, fast on-time delivery, transfer end-user market information, and other tracking records (Chang & Gotcher, 2007). Knowledge must be exchanged and created for rapid market demand response. Dedicated IT assets reflect IT investments in relationship-specific assets and IT 13

14 alignment reflect using IT to develop relationship-specific interaction processes. Relationship-specific interaction processes help partners share timely and accurate information. Thus, IT alignment provides the means for improving coordination and communication between partners in inter-organizational relationships. In summary, we expect that because of the high degree of mutual coordination and alignment of the relationship-specific business processes, IT alignment is the dominant driver of information exchanges. Therefore, the association of IT-related investments with positive information exchange is stronger for IT alignment than for dedicated IT assets. H1. Information exchange is more strongly influenced by IT alignment than by dedicated IT assets. 3.4.Relationship-specific knowledge stores From a procedural perspective, the RSK stores (Moorman & Miner, 1998) contain a firm s collective beliefs, values, procedures, and behavioral routines that are involved in the inter-organizational relationship (Johnson, Sohi, & Grewal, 2004; Moorman & Miner, 1998; Selines & Sallis, 2003). Partners integrate and interpret RSK information into jointly developed RSK stores in the international 14

15 subcontracting relationship context. For example, RSK stores involve adjusting the common understandings of end-user needs and preferences, and the routines in order-delivery processes, as well as having standard procedures for effectively managing problems. Scott (2000) argued that IT assets facilitate inter-organizational learning. Suppliers and international buyers accept new information and assimilate it into the RSK stores through joint interpretation or critical deliberation. It follows that the likelihood of developing a relationship memory increases with the increased occurrence of joint interpretation,. As mentioned, IT alignment helps partners develop a high degree of coordination and mutually align their relationship-specific business processes. Therefore, we expect that the association of IT-related investments with positive RSK stores is stronger for IT alignment than for dedicated IT assets. In addition, information exchange, as a form of partner knowledge sharing, also improves partner efficiency in acquiring, jointly interpreting, and storing accurate and necessary knowledge (Madhok & Tallman, 1998; Selnes & Sallis, 2003). Therefore, information exchange can facilitate RSK stores. H2a. RSK stores are more strongly influenced by IT alignment than by dedicated IT assets. H2b. Information exchange has a positive effect on RSK stores. 15

16 3.5.Joint action Joint action is the extent to which suppliers and buyers work together toward common goals and address crutial relationship issues (Heide & John, 1990; Subramani & Vemkatraman, 2003). Joint action facilitates the degree of participative management and cooperative strategies in inter-organizational relationship (Dyer & Singh, 1998; Heide & John, 1990). Joint action, in the international subcontracting relationship context includes: joint response to customer needs and market changes, new product development, and reducing production cost. Both dedicated IT assets and IT alignment as mentioned above, minimize communication coordination and enable information exchange. Therefore, both dedicated IT assets and IT alignment help partners reduce communication costs and facilitate effective joint action. As indicated, IT alignment helps partners develop a high degree of coordination and mutually align their business processes. Therefore, we expect that the association of IT-related investments with positive joint action is stronger for IT alignment than for dedicated IT assets. In addition, information exchanges also facilitates improvements in partner efficiency in acquiring accurate and necessary knowledge and in coordinating activities (Kim, Cavusgil, & Calantone, 2006; Selnes & Sallis, 2003). Therefore, information exchange contributes to joint action. 16

17 H3a. Joint action is more strongly influenced by IT alignment than by dedicated IT assets. H3b. Information exchange has a positive effect on joint action. 3.6.Partnership capabilities and co-created value Co-created value comprises strategic benefits that cannot be generated by a partner in isolation and can be created only through partner cooperation (Jap, 1999). Prahala and Ramaswamy (2004) noted that the interaction between the buyer and the seller hass become the locus of value creation. The primary reason that co-created value is selected as a dependent variable in this study is that the realization of dyadic value creation is the ultimate goal of OEM suppliers and international buyers in international subcontracting relationships. According to Vargo and Lusch (Vargo & Lusch, 2004), the views of exchange relationships have shifted from a firm-centric view of value creation to a co-creation view. As Madhok & Tallman (1998) stated, co-created value is a collaboration-specific quasi-rent situation, in which a partner cannot benefit from a market transaction by acting alone. Transformational capabilities, according to the RBV and the dynamic-capability perspective, are firm capabilities required to convert inputs into outputs (Lado, Boyd, 17

18 & Wright, 1992; Menguc & Auh, 2006; Tippins & Sohi, 2003). This study proposes that partnership capabilities can be considered transformational capabilities that convert IT-related investments (resources) into co-created value. Hence, this study contends that any co-created value derived from IT-related investments is likely to be mediated by partnership capabilities. Therefore, we propose that partnership capabilities serve as catalysts in transforming IT investments into co-created value for partners. Information exchange, or partner knowledge sharing, improves the efficiency of partners in acquiring accurate, necessary, and timely end-user and competitor data. Therefore, information exchange enhances co-created value. Partnership capabilities also emerge through RSK stores and are associated with inter-organizational routine development. Absorptive capacity, according to the absorptive capacity perspective, constitutes a set of organizational routines and processess by which firms acquire, assimilate, transform, and exploit knowledge to achieve and sustain competitive advantage (Lane & Lubatkin, 1998; Malhotra, Gosain, & Sawy, 2005; Zahra & George, 2002). Partners with prior relevant knowledge aptly acquire, assimilate, transform, and exploit new knowledge (Sinkula, 1994). Therefore, this study proposes that organizational relationships can apply developed RSK stores to co-create value. Finally, joint action enhances participative management in inter-organizational 18

19 relationships (Dyer & Singh, 1998; Heide & John, 1990; Subramani & Vernhatraman, 2003). Thus, joint action is associated with inter-organizational routine development, and consequently co-creating value. In this work, therefore, we argues that partnership capabilities (information exchange, RSK stores, and joint action) contribute to co-created value. H4a. Information exchange has a positive effect on co-created value. H4b. RSK stores have a positive effect on co-created value. H4c. Joint action has a positive effect on co-created value. 3.7.The mediating role of partnership capabilities Partnership capabilities are a direct consequence of IT-related investments and are a central driver of co-created value. Thus, we argue that partnership capabilities mediate the effects of IT-related investment and co-created value. Based on the work of Dyer and Singh (1998), we theorize that IT-related investments (resources) can span an organization s boundaries and be embedded with the inter-organizational collaborative processes. Thus, IT-related investments in the inter-organizational relationships can facilitate inter-organizational learning and enhance partnership capabilities. Furthermore, based on privious arguments regarding the RBV, we theorize that 19

20 resources lead to capabilities, which, in turn, enhance firm performance (Barney, 1991; Barney, Wright, & Ketchen, 2001; Wernerfelt, 1984). Thus, partnership capabilities serve as a mediator between IT-related investment and co-created value. H5. Partnership capabilities mediate the effect of IT-related investment and co-created value. 3. Research method 3.1. Research setting The IT industries in Taiwan were chosen as the research setting. The demand for customization is high and product life cycles are short in IT industries. Taiwanese IT firms are extensively experienced in their role as prominent global manufacturing providers. In recent decades, Taiwanese IT firms have established themselves as world-class OEM/original design manufacturing (ODM) suppliers, providing various products to achieve internationalization. According to the 2007 survey of international procurement (IPO) in Taiwan, the top five IPO purchasing companies (HP, Dell, Sony, Apple, and IBM) accounted for 76% of total international information technology (IT) purchasing in Taiwan (Jean, Sinkovics, & Cavusgil, 2010). For example, Quanta Computer, Inc., which controls numerous patents for industrial and mechanical design, 20

21 expects to supply 16 million notebook PCs in 50 different models for buyers including Dell, Sony, and Apple. Motorola hired Taiwan s BenQ to manufacture and design millions of mobile phones (Chang & Gotcher, 2007) Data collection The unit of analysis in this study was the subcontracting relationship between a Taiwanese supplier and a particular OEM client. Our target sample was OEM/ODM suppliers operating in the IT industry. The sampling frame was constructed based on three different databases: The Directory of Major Companies of the Information Industry in the Taiwan, R.O.C. (Republic of China) published by The Institute of the Information Industry, the supplier list of The International Sourcing Center (ISC) for Taiwan, and the Electronics and Information Technologies category on the Taiwan Stock Exchange (TSE). Key informants were sales directors of OEM/ODM suppliers because these managers were the most knowledgeable about the international subcontracting relationships. Initially, a series of 10 in-depth interviews with sales directors was conducted to gain general insight into IT-related investments, partnership capabilities and joint transaction value, and to enhance the foundation of our study. Prior to data collection, a pilot study was conducted among 20 sales directors who had at least 3 21

22 years international subcontracting business experience to obtain suggestions for adapting the research items to ensure clarity and appropriateness. Numerous redundant and ambiguous items were revised and eliminated accordingly. The questionnaire was originally developed in English, and then translated into Chinese by a bilingual marketing researcher. Standard blind translation procedures were used (Brislin, 1970). A questionnaire, including a cover letter explaining the overall purpose of the study, was mailed to the sales directors of the OEM/ODM manufacturers in Taiwan. Of the 525 questionnaires mailed, 134 were returned. Eight questionnaires were eliminated because of substantial missing data on crucial construct items, resulting in 126 questionnaires that could be used for analysis (response rate: 24%). To test for a non-response bias, Armstrong and Overton s procedure was used to compare the early respondents with the late respondents on firm characteristics such as the number of employees and sales volume (Armstrong & Overton, 1997). No significant differences were found. Thus, a non-response bias is not expected to affect the study results significantly. The surveyed contract manufacturers supply various products, including notebook PCs, PDAs, digital cameras, mobile phones, networking equipment, desktop PCs, peripherals, card/board, and semiconductors. A total of 62% of the responses pertained to relationships with U.S. buyers; 22% pertained to relationships with 22

23 European buyers; 16% pertained to relationships with Japanese buyers. In addition, the sample was composed of companies with annual sales turnovers ranging from US$ 6.7 million to US$ 9.6 billion. The number of employees ranged from 25 to 30,000, with an average of 3,353. Moreover, 37% of the respondents were top executives, 29% were at the managerial level, and 34% were general staff members Measure Development Construct Measures Multi-item scales were developed based on previous related research and field interviews with contract manufacturer managers. For all scales, all items were measured using a 7-point scale (7 = strongly agree,, 1 = strongly disagree). IT-related investments were measured by using previous empirical studies in TCE-based literature (Subramani & Vernkatraman, 2003; Williamson, 1985). The three items of dedicated IT assets, adapted from Subramani and Venkatraman (2003), are used to assess IT physical assets in asymmetric interorganizational relationships. This construct reflected IT investments in hardware and software. The scale of IT alignment, measured by three items and adapted from Wu et al. (2006) and Subramani and Venkatraman (2003), reflected the degree of using IT system to develop relationship-specific interaction processes across the interorganizational border. In 23

24 addition, three variables were used to capture the partnership capabilities. Information exchange was measured by using Kim et al. (2006) and Selnes and Sallis s (2003) studies in organizational learning-based literature, and was used to assess the degree of a supplier to share knowledge with its partners. Joint action was measured by three items taken from Heide and John (1990). This construct reflected the extent of parties undertake activities jointly in interorganizational relationship. RSK stores, measured by three items adapted from Johnson et al. (2004) and Selnes and Sallis (2003), captured the level of stored relationship-specific information or experience between partners. Finally, co-created value was measured with four items by using Jap s (1999) study in RBV-based literature and reflected the level of strategic benefits jointly gained over competing dyads in inter-organizational relationship Reliability and validity A confirmatory factor analysis (CFA) was conducted in Amos 4.0 to assess the reliability, and convergent and discriminant validity of the multi-item scales (Arbuckle & Wothke, 1999). In addition, to establish the internal consistency of the measures, composite reliabilities (CR) was estimated. The CR of each factor ranges from 0.83 to 0.94 (larger than 0.7). As reported previously, the Cronbach s α score for each construct was above the widely accepted threshold of 0.7. Details of the constructs and the operationalizations are provided in Appendix A. Although the 24

25 chi-square statistic (χ² = , df=133, p =0.006) is significant, this statistic is sensitive to the sample size and model complexity (Bagozzi & Yi, 1988). However, the loadings on indicator loadings are significant; so, convergent validity is achieved. Discriminant validity of the measures was assessed in two ways. First, we tested whether for each pair of constructs, the squared correlation between the two constructs is less the average variance extracted (AEV) for each construct (Fornell & Larcker, 1981). The results show that the AEV of each factor is larger than 0.5 and larger than the squared correlation of that factor s measure with all measures of other factors in the model (Bagozzi & Yi, 1988) (see Table 1). Second, a nested model CFA was conducted to test whether for every pair of factors in the measurement models, a two-factor model would fit significantly better than a one-factor model (Bagozzi, Yi, & Phillips, 1991). The difference between the Chi-square goodness-of-fit values of the constrained and unconstrained models is used as an indicator of discriminant validity of the constructs. If the two-factor model fits significantly better than the one-factor model, the discriminant validity of the two factors is supported. In all cases, the results yielded that all Chi-square differences between the constrained and unconstrained models are significant based on one degree of freedom of difference In order to minimize the effects of common method variance, a Harman s one-factor test was performed (Podsakoff & Organ, 1986). Results show that no 25

26 common factor loading is apparent on any of the measures, and Factor 1 accounts for roughly 18% of the variance in the data; therefore, common method variance is not of great concern in this study. 4. Results Table 1 shows the means, standard deviations, and correlations among the study variables. Data were analyzed using structural equations modeling with Amos 4.0. To assess the overall fit of the model, goodness-of-fit measures were examined. Goodness-of-fit measures the correspondence of the actual or observed input matrix with that predicted from the proposed model. Goodness-of-fit measures are of three types: absolute fit measures, incremental fit measures, and parsimonious fit measures. Absolute fit measures assess the overall model fit. Three measures are appropriate for direct model evaluations. This measurement model produced the following fit statistics in hypothesized model (Model 1): χ² = , df =136, p =0.003, Goodness of Fit Index (GFI) =0.86, and root mean square error of approximation (RMSEA) = 0.06.The Chi-square (χ²) result was significant, which indicates that the actual and predicted matrices are statistically different. Although the chi-square statistic is significant, this statistic is sensitive to the sample size and model complexity (Bagozzi & Yi, 1988). The GFI is less than the commonly accepted threshold level of

27 Meanwhile, the RMSEA value is in the recommended range between 0.05 and In addition, incremental fit measures compare the proposed model to another model specified by the researcher. The Tucker-Lewis Index (TLI) and Normed Fit Index (NFI) are 0.96 and 0.90 respectively. The all indices were above the commonly accepted threshold level of 0.9. Finally, parsimonious fit measures adjust the measure of fit to provide a comparison between models with differing numbers of estimated coefficients. Two measures appropriate for direct model evaluations are the Comparative Fit Index (CFI) and normed Chi-square (χ²/ df). The CFI is 0.98, which is above the commonly accepted threshold level of 0.9. The normed Chi-square (χ²/ df) was within acceptable threshold limits ( ) In summary, the overall model fit measures indicated that this model is acceptable. Table 1 insert here. Table 2 and Figure 2 report the standardized path coefficients (SPCs) for the estimated relationships. H1 argued that information exchange is more strongly influenced by IT alignment than by dedicated IT assets. The results show that both dedicated IT assets (SPCs = 0.28, p < 0.05) and IT alignment (SPCs = 0.32, p < 0.01) positively affect information exchange. The effect of IT alignment is stronger than the effect of the dedicated IT assets (0.32 > 0.28). To test which type of IT-related investment has a stronger impact on information exchange, we conducted a 27

28 Chi-square difference test to compare an unconstrained model that freely estimates all the coefficients with a constrained model in which the coefficients associated with dedicated IT assets and IT alignment are fixed as equal for information exchange indicator. The result of model comparisons shows that IT alignment has not a significantly stronger effect than dedicated IT assets on information exchange (Δχ² [1] = 1.34, p > 0.05). H1 is not supported. H2a argued that RSK stores are more strongly influenced by the IT alignment than by dedicated IT assets. The results show that the effect of IT alignment (SPCs = 0.12, t = 1.01, p>0.1) is stronger than the effect of dedicated IT assets (SPCs = 0.02, t= 0.16, p > 0.1). To provide a sound statistical test of H2a, we conducted a Chi-square difference test to compare an unconstrained model that freely estimates all the coefficients with a constrained model in which the coefficients associated with dedicated IT assets and IT alignment are fixed as equal for RSK stores indicator. The result of model comparisons shows that IT alignment does have not a significantly stronger effect than dedicated IT assets on RSK stores (Δχ² [1] = 0.24, p > 0.1). H2a is not supported. H2b predicts that information exchange is positively related to the RSK stores (SPCs =.43, p <.001). H2b is supported. H3a argued that joint action is more strongly influenced by IT alignment than by dedicated IT assets. The results show that the effect of IT alignment (SPCs = 0.38, t = 28

29 3.92, p<0.01) is stronger than the effect of dedicated IT assets (SPCs = 0.18, t= 0.16, p > 0.1). To provide a sound statistical test of H3, we conducted a chi-square difference test to compare an unconstrained model that freely estimates all the coefficients with a constrained model in which the coefficients associated with dedicated IT assets and IT alignment are fixed as equal for joint action indicator. The result of model comparisons shows that IT alignment has a significantly stronger effect than dedicated IT assets on joint action (Δχ² [1] = 15.34, p < 0.01). H3a is supported. H3b predicts that information exchange is positively related to the joint action (SPCs = 0.43, p < 0.001). H3b is supported. H4 predicts that information exchange (SPCs = 0.01, p > 0.1), joint action (SPCs = 0.34, p< 0.01), and RSK stores (SPCs = 0.31, p < 0.01) are positively related to the co-created value. H4b and H4c are supported, but H4a is not supported. H5 theorized that partnership capabilities mediate the effect of IT-related investment and co-created value. We tested H5 with the addition of two direct paths from IT-related investment to co-created value (Model 2) (χ² = , df = 134, χ²/df =1.37, p = 0.003, CFI = 0.96, IFI = 0.97, TLI = 0.96, RMSEA = 0.05). In addition, in this specification, none of the direct effects dedicated IT assets and IT alignment on co-created value was significant at the.05 level. Hence, the direct effects of dedicated IT assets and IT alignment on co-created value are fully mediated by partnership capabilities. In summary, Hypotheses H2b, H3a, H3b, H4b, H4c, and H5 are supported. Figure 2 insert here. 29

30 Table 2 Insert Here. To test the alternative model, two rival models were estimated (Selnes & Sallis, 2003; Venkatraman, 1989). First, in the partially-mediated model (Model 2), this study added two direct effects of dedicated IT assets and IT alignment on co-created value in hypothesized model (Model 1). The Chi-square difference is not significant ( 2 = 2.31; p >.05), which revealed the hypothesized model is the best fitting (2) model. Second, in the non-mediated model, the construct of partnership capabilities was not allowed to mediate any of the relationship. Overall fit of the hypothesized model is better than the non-mediated model (χ² = , df = 140, χ²/df =1.80, p = 0.000, CFI = 0.929, IFI = 0.93, TLI = 0.91, RMSEA = 0.08). Therefore, the hypothesized model is better than the non-mediated. 5. Discussion and conclusions Previous research has neglected the issue of whether IT affects co-created value in the inter-organizational relationships. This study addressed this issue by analyzing the partnership capabilities mediating effects on the relationship between IT-related investments and co-created value in the context of international subcontracting partnerships. Our findings provide significant implications for academics and practitioners. 30

31 5.1. Theoretical implications This study has several theoretical implications. First, according to the RBV, IT cannot be directly used to create competitive advantage because competitors can imitate and acquire IT (Mata & Fuerst, 1995). This study contributed to the RBV by supporting that co-created value is influenced by partnership capability (an inimitable capability), which is embedded in inter-organizational relationships. This study developed a new partnership capability concept according to the dynamic-capability perspective (Teece, Pisano, & Shuen, 1997), consisting of three dimensions: information exchange, RSK stores, and joint action. Prior literature emphasized one or a few specific aspects (Heide & John, 1990; Johnson, Sohi, & Grewal, 2004; Kim, Cavusgil, & Calantone, 2006; Subramani & Vernkatraman, 2003), but few studies provided a concept of partnership capabilities in the context of international subcontracting relationships. Partnership capabilities were the crucial catalysts in transforming IT-related investments into co-created value. Second, the results show that RSK stores and joint action directly enhance co-created value. We also hypothesized a positive relationship between information exchange and co-created value, finding no significant relationship. This might be explained by the mediating relationship of joint action (RSK stores) and co-created value. Information exchange by itself does not offer sufficient co-created value. 31

32 Instead, it contributes to such partnership capabilities as joint action and the RSK stores of the partnership. Partners exchange information to enhance joint action and RSK stores, which, through effective information exchange partners can create joint value. Information exchange enhances the co-created value by improving RSK stores, as well as by enhancing partnership efficiencies through taking action (Selnes & Sallis, 2003; Sinkula, 1994). Third, this work postulates that IT alignment has a significantly stronger effect on partnership capabilities (information exchange, RKS stores, and joint action) than dedicated IT assets do. However the result shows that IT alignment does not have a significantly stronger effect compared with that of dedicated assets on information exchange. A possible explanation is that dedicated IT assets and IT alignment are certainly not mutually exclusive. These two IT-investments complement each other, and suppliers are likely to use both in the context of international subcontracting partnerships. In addition, IT alignment does not have a significantly stronger effect than dedicated IT assets do on RSK stores. A possible explanation is that information exchange mediates the effect of IT-related investments on RSK stores. According to organizational learning theory, learning as a process includes information acquisition, information dissemination, shared interpretation, and organizational memory (Selnes & Sallis, 2003; Sinkula, 1994). Effective information exchange increases the value of 32

33 information. RSK stores, which constitute the ability to store and access prior knowledge, enable a firm to sustain a pace of long-term learning steadily. In the context of international subcontracting relationship, partners jointly develop relationship memories in which relationship-specific knowledge information is integrated and interpreted. For example, relationship memory involves adjusting the common understanding of end-user needs and preferences; adjusting the routines in order-delivery processes; and storing exchange information in electronic databases. Suppliers and international buyers accept new information and assimilate it into relationship-specific memory through joint interpretation or critical deliberation. It follows that the likelihood of developing relationship memory increases in the increased occurrence of joint interpretation. Finally, the results indicate that dedicated IT assets positively influence information exchange, however, they do not directly influence joint action or RSK stores. A possible explanation is that information exchange mediates the relationship between dedicated IT assets and joint action as well as RSK stores. Additionally, IT alignment positively influences information exchange and joint action, but does not directly affect RSK stores. A possible explanation is that the effect of IT alignment on RSK stores is mediated by information exchange. Obviously, dedicated IT assets do not play the same role as IT alignment does. This reinforces the critical role of 33

34 information exchange and shows that they are necessary for the occurrence of joint action and the formation of RSK stores Managerial implications The study findings provide useful managerial implications for international buyers and contract manufacturing practitioners. First, contract manufacturers should proactively make IT-related investments; such investments not only signals supplier commitment to maintaining an enduring relationship, but also facilitate partnership capability engagement with buyers. Second, contract manufacturers must recognize that dedicated IT assets and IT alignment differently affect the manner in chich partnership capability is facilitated. The empirical findings show that dedicated IT assets influences information exchange only, whereas IT alignment positively influences information exchange and joint action. Therefore, IT alignment is critical in facilitating partnership capabilities that realize IT-related investment value. Third, the findings suggest that joint action and RSK stores enhance co-created value. International buyers and contract manufacturing practitioners should focus on building joint action and RSK stores with their international subcontracting partners Limitations and future research This study has several limitations. First, the results do not imply causal 34

35 relationships. Longitudinal data should be used in further research to test the hypotheses. Second, our empirical findings are based on data from Taiwan. Although Taiwan shares numerous characteristics with other developed and emerging economies, it also possesses some idiosyncrasies. Therefore, the results might have to be interpreted carefully. Third, this study, like most survey research on dyadic relationships responded to all variables from one-sided self-reported data. Assessments from all or both sides would be beneficial because different parties perceptions of the same phenomenon can substantially diverge. Additional research must study different partnership capability dimensions during various subcontracting relationship stages. Jap and Ganesan (2000) discussed four distinct relationship phases: exploration, building, maturity, and decline. The relationship during the buildup phase is perpetuated by interdependence, in which two partners exchange information to facilitate joint action and RSK stores, which might be crucial catalysts during the maturity phase, thereby transforming IT-related investments into co-created value. ACKNOWLEDGEMENTS The author is grateful to the National Science Council, Taiwan foundation for research support (NSC H MY2). REFERENCES 35

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