Effects of Supply Chain Integration and Market Orientation on Firm Performance: Evidence from China

Transcription

1 Effects of Supply Chain Integration and Market Orientation on Firm Performance: Evidence from China Hefu Liu*, Weiling Ke, KK Wei, and Zhongsheng Hua (2013), Effects of Supply Chain Integration and Market Orientation on Firm Performance: Evidence from China, International Journal of Operations & Production Management, 33(3), Abstract Purpose: The present paper aims to investigate the impact of two different dimensions of supply chain integration on two aspects of firm performance in the emerging economy of China. In addition, the moderating effects of market orientation on the relationship between supply chain integration and firm performance are explored. Design/methodology/approach: Data were obtained from a survey administered to 246 firms in the manufacturing and services industry in China. Hierarchical regression analysis was used to test the hypotheses. Findings: Operational coordination is positively associated with operational performance and business performance. Information sharing affects only operational performance; it has no impact on business performance. Furthermore, the results provide empirical support for the moderating effects of market orientation on the association of supply chain integration and firm performance. Research limitations/implications: The present study uses the focal firm as the unit of analysis. Future studies should examine the research issue at the level of the supply chain. Second, the generalizability of the current findings may be limited because this present study was conducted only in China. Future studies should collect data from firms in different political and cultural environments. Third, the current research used a cross-sectional research design. Future research should consider applying multiple sources of data and 1

2 conducting a longitudinal study. Finally, the present study measured firm performance using the subjective perceptions of the key respondents. Future research should include objective measures of firm performance. Practical implications: Managers are provided with an in-depth understanding of how the different dimensions of supply chain integration affect the different aspects of firm performance and how the types of market orientation in emerging economies, in general, and in China, in particular, moderate these effects. Originality/value: The current paper contributes knowledge on the value-realizing mechanism of supply chain integration from a resource-based view. It presents a multidimensional explanation of the relationship among supply chain integration, market orientation, and firm performance in the context of China. Keywords: Supply chain integration, information sharing, operational coordination, market orientation Paper type: Research paper 2

3 1. Introduction The effects of supply chain integration (SCI) on firm performance have received considerable attention from scholars and practitioners (Flynn et al., 2010; Frohlich, 2002; Lee and Whang, 2004; Vaart and Donk, 2008). The extant literature on SCI is largely driven by the typical view that a greater level of integration leads to better firm performance (Cannon et al., 2010; Rosenzweig, 2009). SCI can help firms respond to the business challenges at the strategic, operational, and technological levels (Frohlich, 2002; Liu et al., 2010). However, previous studies were conducted primarily in mature market economies (Cannon et al., 2010; Rosenzweig, 2009), which have significant differences in political, social, and economic systems compared to emerging economies (Zhao et al., 2007). The findings of these studies may not be valid when applied to the context of emerging economies. As such, understanding of the effect of SCI in emerging economies remains limited. Among the emerging economies, China has increasingly become the manufacturing center of the world. The supply chain in most Chinese companies easily spans across multiple continents. Consequently, the performance of these firms is highly affected by the availability of timely information about the market (Li et al., 2008). However, as a country transforming from a planned economy to a market economy, China does not have sufficient formal institutions that support free markets. Compared with their counterparts in mature market economies, firms in China face problems caused by ambiguous and unpredictable rules for market competition (Li et al., 2008). Moreover, China has a long tradition of using informal ties to coordinate transactions, which leads some researchers to refer to such guanxi as the lifeblood of business conduct in Chinese society (Li et al., 2008). The heavy reliance of informal ties inspires the question: Would market-based strategies, such as SCI, exert similar effects on firm performance in China to those countries in the mature market 3

4 economies? Answering this question would provide insights into how SCI affects firm performance in the emerging economy of China (Li et al., 2008; Liu et al., 2009). A wealth of research investigates how SCIs influence firm performance and if this influence is contingent on contextual characteristics. The potential benefits of SCI are widely touted, and support for its positive effects is increasing (Flynn et al., 2010; Rosenzweig, 2009; Vaart and Donk, 2008). However, some researchers suggest that research on SCI should shift from the justification of its value to the understanding of the contextual conditions under which it is effective (Wong et al., 2011 p.604). Indeed, with intensified globalization and competition in the world economy, firms are increasingly required to work closely with their supply chain partners (da Silveira and Arkader, 2007; Flynn et al., 2010; Forslund and Jonsson, 2009). Firms in China follow this trend as well. In particular, most of these firms have embarked on the journey of transforming their management mindset to be more marketoriented (Li et al., 2010; Min et al., 2007; Zhao et al., 2007; Flynn et al., 2010; Wei and Lau, 2008). Market orientation refers to the orientation of a firm towards creating superior value for its customers (Naver and Slater, 1990). Market orientation affects the efficiency of various organizational processes (Wei and Lau, 2008). Thus, investigating how SCI affects firm performance contingent upon the focal firm s market orientation would shed new light on the understanding of the underlying influential mechanisms of SCI. The objective of the current study is to evaluate how the market orientation of a firm moderates the influences of SCI on firm performance in emerging economies. Specifically, drawing upon the resource-based view (RBV), multidimensional relationships between SCI and firm performance in China are explored. Building on the existing SCI literature (Frohlich and Westbrook, 2001; Kulp et al., 2004b; Lau et al., 2010; Sahin and Robinson, 2005), the current study develops a framework for accurately defining the extent of SCI, which consists of information sharing and operational coordination. Information sharing refers to the sharing 4

5 of information among supply chain members, whereas operational coordination reflects the exchange of decision rights, knowledge, and resources across the supply chain to streamline and coordinate workflow activities (Kulp et al., 2004a; Lee, 2000; Lee and Whang, 2004). These two dimensions of SCI can affect firm performance in terms of operational performance and business performance, respectively. In addition, the focal firm s market orientation moderates the relationship between SCI and firm performance. Market orientation reflects the value-based strategic philosophy of a firm that can help it stay close to the market, and equip it with great potential resources that will provide a competitive advantage (Hsieh et al., 2008). In contrast, SCI comprises a stock of capabilities (Rai et al., 2006) with which the firm with market orientation enhances its performance. The results of the current study extend the findings of previous SCI research and fill the gaps in SCI literature by examining the moderating effects of market orientation in emerging economies. 2. Literature Review 2.1 Supply chain integration SCI refers to the degree to which a firm collaboratively manages intra- and interorganizational processes with channel partners (Flynn et al., 2010; Frohlich, 2002; Lee and Whang, 2004). SCI helps firms to improve partner-related routines and processes through global and real-time collaboration, and to eventually respond to technological and market changes (Rosenzweig, 2009). Scholars and practitioners have increasingly realized that SCI is a great innovation in supply chain management and a new frontier of opportunities to enhance firm performance (da Silveira and Arkader, 2007; Flynn et al., 2010; Frohlich, 2002; Kim, 2006; Kulp et al., 2004b; Lau et al., 2010; Lee and Whang, 2004; Ou et al., 2010; Rai et al., 2006; Sahin and Robinson, 2002). 5

6 As Appendix A shows, previous studies regard SCI as a construct of different dimensions and emphasize the importance of exploring SCI s dimensions when evaluating its effects on firm performance (Cao and Zhang, 2011; Flynn et al., 2010; Lau et al., 2010). Lau et al. (2010), for example, argue that SCI requires a fine-grained empirical analysis (p. 21) because it involves multiple organizational processes that integrate suppliers, internal functional units, and customers (p. 23). Extant literature generally agrees that information sharing is the foundation of SCI (e.g., Kulp et al., 2004a; Kulp et al., 2004b; Lau et al., 2010; Lee and Whang, 2004; Sahin and Robinson, 2002). Without information sharing, few gains can be made in overall supply chain integration (Lee, 2000, p. 33). Furthermore, the literature suggests that firms require a higher level of coordination to exchange decisions rights, knowledge and resources, in addition to information sharing as the foundation of SCI (Lee, 2000). Kulp et al. (2004a; 2004b), for example, propose that process collaboration, as information sharing, is a basic dimension of SCI. Similarly, Sahin and Robinson (2002; 2005) define information sharing and decision-making coordination as two major dimensions of supply chain integration at the operational level (p. 582). Following these scholars, SCI is a construct consisting of information sharing and operational coordination. Information sharing refers to the extent to which information is exchanged among members across the supply chain (Kulp et al., 2004b; Lee and Whang, 2004; Rai et al., 2006). It reflects the degree of information transparency and direct, real-time information availability. In contrast, operational coordination is the extent to which firms exchange decision rights, knowledge, and resources across the supply chain to streamline supply chain activities (Lee and Whang, 2004). It reflects the extent to which a firm coordinates and collaborates with channel partners to meet customer demands and seek opportunities to automatically execute tasks (Sanders, 2007). In other words, information sharing involves sharing critical and proprietary information among supply chain partners, whereas 6

7 operational coordination involves how firms jointly derive knowledge from the shared information and change business processes as needed. In the existing literature, scholars indicate that these two dimensions of SCI can act as the critical predictors of the performance of the superior firm. For instance, empirical evidence shows that sharing information in the supply chain helps firms derive competitive advantage in various ways, such as increasing sensitivity to market trends and customer demands, reducing total cycle time and the cost of inventories, and acquiring innovative ideas for products/services (Kulp et al., 2004b; Lau et al., 2010; Lee and Whang, 2004). In addition, Sanders (2008) proposes that operational coordination results in cost-effective, speedy, reliable, and a less error-prone supply chain operation, which helps firms respond to market uncertainties in a rapid and precise manner. Studies that investigate how SCI affects firm performance were primarily conducted in the context of mature market economies. However, insights from prior work may not be directly applicable in the context of emerging economies because of the differences between mature markets and emerging economies (Cai et al., 2010; Lockstrom et al., 2010; Zhao et al., 2007). As such, understanding of the effects of SCI in emerging economies in general and in China in particular, is limited. In addition, the findings of empirical research on the relationship between SCI and firm performance have been mixed, even controversial. For example, whereas some studies offer support for the significant, positive relationship between SCI and firm performance (e.g., Frohlich, 2002; Rai et al., 2006), others show that the relationship is insignificant (e.g., Flynn et al., 2010). Such inconsistency calls for the exploration of the effects of the contextual factors. In particular, there may be critical moderators that affect how SCI influences firm performance. In summary, given that supply chain management is essential for the success of firms in China, how SCI affects firm performance in China warrants scrutiny. Furthermore, to understand the underlying influencing mechanisms of SCI, 7

8 contextual factors, such as market orientation, as a moderator of the SCI-performance association, must be considered. 2.2 Market orientation Market orientation, which reflects a firm s orientation toward creating superior value for customers, plays a fundamental role in organizational management and strategy (Li et al., 2010; Min et al., 2007). It guides firms in conducting business to create superior value efficiently and effectively and is regarded as a unique resource by RBV (Hsieh et al., 2008; Li et al., 2010). Market orientation has three dimensions: customer orientation, competitor orientation, and interfunctional coordination. Specifically, interfunctional coordination refers to the coordination of firm resources and customer-related activities throughout the whole firm (Zhou et al., 2009). In contrast, customer orientation represents an emphasis on the sufficient understanding of one s target buyers, and competitor orientation focuses on the understanding of the short-term strengths and weaknesses and long-term capabilities and strategies of both the key current and potential competitors (Naver and Slater, 1990 p.21-22). Scholars have increasingly realized the importance of market orientation in supply chain management (Martin and Grbac, 2003; Min et al., 2007; Sanzo et al., 2003). For example, Green et al. (2006) contend that a firm s market orientation can affect firm performance by influencing its supply chain management. Similarly, Min et al. (2007) suggest that market orientation is a foundation for managing the supply chain, and has a positive impact on firm performance. In a similar vein, investigating the effect of market orientation extends the understanding of the mechanism in which SCI influences firm performance. Furthermore, Zhou et al. (2009) argue that, unlike interfunctional coordination, which is critical for responding to the market intelligence effectively, customer and competitive orientations are two primary means that firms employ to interact with environments (p. 1064). They further 8

9 suggest that customer and competitor orientation have important implications on the efficiency of market-based strategies (Zhou et al. 2009). The present study focuses on interorganizational relationships, examines the moderating effects of customer orientation and competitor orientation on the relationships between SCI and firm performance, and treats interfunctional coordination as a control variable, similar to Zhou et al. (2009). 2.3 Firm performance A clear definition of firm performance is required in clarifying the multidimensional relationship between SCI and firm performance. The notion of firm performance has many aspects, and each aspect has been operationalized in various ways in previous supply chain management studies. In particular, existing SCI literature has increasingly focused on testing the operation- and business-related benefits of SCI simultaneously. For example, Rosenzweig (2009) emphasizes exploring the operational and business performance related to SCI. Flynn et al. (2010) reveal that operational performance and business performance are the two most utilized measures of firm performance related to SCI. Following these studies, the present research considers operational performance and business performance as two key aspects of firm performance. Specifically, operational performance refers to improvement in the response of a firm to a changing environment relative to its competitors, whereas business performance refers to the financial performance of a firm related to investment return, profitability, and net income. 3. Conceptual Model and Hypotheses 9

10 Market orientation Customer orientation (H3) Competitor orientation (H4) Supply chain integration (SCI) Information sharing (H1a, H1b) Operational coordination (H2a, H2b) Firm performance Operational performance Business performance Control Variables Interfunctional coordination Ownership Industry Firm size IT department size Figure 1 The conceptual model and hypotheses Figure 1 depicts the research framework investigated in this study. The model describes how the dimensions of SCI influence firm performance and considers the moderating effects of market orientation. It shows how information sharing and operational coordination influence operational and business performance, respectively, and how the firm s customer and competitor orientation moderate the relationships between the dimensions of SCI and aspects of firm performance. Based on their underlying rationale, the following sections present the detailed hypotheses related to these relationships. 3.1 SCI and firm performance As Lee and Whang (2004) contend, the capability for all supply chain partners to have access to shared information on a timely basis is therefore key to improving supply chain performance (p. 126). Therefore, information sharing is critical for operational and business performance. Specifically, information sharing facilitates product delivery, new market exploration, and new product/services promotion (Devaraj et al., 2007; Rai et al., 2006). In the current market, this process is more salient due to the open, real-time, and rich content features of online information. With the availability of real-time and rich content information, firms can sense and respond to market uncertainties rapidly and extensively (Lee and Whang, 10

11 2004). For example, through sharing information in the supply chain, a firm can quickly detect the problems related to customer demands, especially when customers want to receive information directed toward their special needs and interest at any time and place. Such information will help the firm proactively prepare for responding to such demand changes, which is critical for its operational performance. Information sharing reduces demand uncertainty and the phenomenon of increasing variability of demand in a supply chain. This outcome is known as the bullwhip effect (Lee and Whang, 2004; Rai et al., 2006). Information sharing helps firms increase profits by reducing the cost of inventories and enhancing capital and cash flow utilization, thereby improving business performance (Rai et al., 2006). In general, effective information sharing enhances mutual understanding, which reduces miscommunication and prevents unnecessary mistakes, thereby decreasing transaction costs across the supply chain (Frohlich, 2002; Lee and Whang, 2004; Wu et al., 2006). Increased information transparency allows firms to choose suppliers with lower prices, enabling them to produce and deliver products or services at lower cost (Chen et al., 2004; Wu et al., 2006). This process, in turn, creates a positive effect on the business performance of a firm. H1: Information sharing has a positive relationship with (a) operational performance and (b) business performance. Scholars suggest that coordinating supply chain activities, such as procurement, auction, replenishment, payment, product change, and collaborative product design, result in costeffective, speedy, reliable, and less error-prone supply chain operations (Lee, 2000; Lee and Whang, 2004). Specifically, operational coordination enables firms to streamline and automate their operational activities across the supply chain (Lee and Whang, 2004; Liu et al., 11

12 2010). It facilitates the design and manufacture, as well as the quick and reliable delivery of products/services when and where needed (Sanders, 2008). Furthermore, operational coordination allows firms to share the rights to decide on how to reengineer business processes and routines across organizational boundaries. The reapportionment of decision roles, rights, and responsibilities enhances the understanding of management decisions and the sharing of risks and resources. Furthermore, the supply chain becomes more responsive to market changes, enabling supply chain members to jointly explore new markets and develop new products/services (Frohlich, 2002; Lau et al., 2010; Sanders, 2008). In addition to its positive effects on operational performance, operational coordination improves business performance. Specifically, operational coordination streamlines and automates complex activities of the supply chain (Lee and Whang, 2004; Liu et al., 2010). Such streamlining and automation enable firms to reduce the investment cost for specific human resources and facilities, such as specific offices or agents to handle contacts and communication (Lee and Whang, 2004; Sahin and Robinson, 2002). Furthermore, operational coordination enables the well-coordinated movement of inventories across the supply chain, which shortens lead time and reduces the bullwhip effect, thereby increasing cash flow to improve business performance (Lee and Whang, 2004; Sanders, 2008). Moreover, operational coordination promotes resources, knowledge, and risk sharing across the supply chain. This activity reduces development and time-related costs to (re)design new business processes, and improve profit margins in product development (Lau et al., 2010). H2: Operational coordination has a positive relationship with (a) operational performance and (b) business performance. 12

13 3.2 Moderating effects of market orientation Scholars suggest that market orientation acts as a contingency factor in the relationship between innovation and firm performance (Hsieh et al., 2008; Kirca et al., 2005; Matear et al., 2002). Matear et al. (2002), for example, contend that market orientation can contribute to firm performance as a moderator of the innovation performance relationship (p. 1063). From RBV, market orientation is a specific firm-level resource that facilitates firms to sense marketplace requirements and to leverage the value of other capabilities that connect firms to external networks (Hsieh et al., 2008; Trainor et al., 2011). This notion suggests that market orientation supports supply chain collaborative actions directed at achieving superior performance. In addition, studies indicate that, in the market transformation process, the Chinese market is becoming more open, complex, and dynamic (Zhao et al., 2007). This change places great pressure on firms in China in considering market orientation to improve their competitiveness (Wei and Lau, 2008). Nonetheless, the extent of the market orientation among firms in China varies. These differences have significant implications for the improvement in the effectiveness and efficiency of organizational processes (Wei and Lau, 2008). Thus, the present study proposes that the market orientation by the firm moderates the relationship between SCI and firm performance. Customer orientation helps firms achieve better performance through the implementation of SCI. A customer-oriented firm emphasizes understanding and satisfying the demands of the target customers (Zhou et al., 2009). For example, when customers demand change rapidly in the market, the customer-oriented firm will actively collect, analyze, and disseminate sufficient information about its customers. The firm is inclined to predict better customer demands and to conduct better coordination with trading partners in anticipation of market trends (Han et al., 1998). SCI enables the firm to obtain real-time, rich-content 13

14 information, and knowledge to serve better customers from its supply chain partners. Therefore, the firm with customer orientation perceives the value of SCI and exerts effort in leveraging SCI to enhance its operational efficiency and effectiveness. In other words, customer orientation acts as the important activator in the influencing process of SCI on firm performance, as prior studies suggest (Kirca et al., 2005; Zhou et al., 2009). Thus, the high degree of customer orientation in a firm strengthens the positive relationship between SCI and firm performance. H3: The greater the customer orientation, the stronger the relationship between SCI and firm performance will be. Similarly, high competitor orientation strengthens the relationship between SCI and firm performance. Specifically, a competitor-oriented firm emphasizes understanding the strengths and weaknesses of key current and potential competitors (Naver and Slater, 1990). To deepen such understanding, the firm should watch competitors closely, actively learn about them, and quickly match their marketing initiatives. SCI is a competitive strategy that enhances firm efficiency. Thus, a firm with competitor-orientation is more likely to regard SCI as a mechanism to improve performance. Furthermore, the competitor-oriented firm internalizes the strengths or advantages of its competitors through imitation (Zhou et al., 2009). This type of firm tends to understand clearly its own strengths and weaknesses, as well as those of its competitors. The competitor-oriented firm actively studies its competitors and imitates their successful actions. As such, competitor orientation enables the firm to avoid pitfalls in the implementation and assimilation of SCI. The firm learns innovative SCI applications and eventually strengthens the positive influences of SCI on its performance. 14

15 H4: The greater the competitor orientation, the stronger the relationship between SCI and firm performance will be. 4. Research Methodology 4.1 The sample China is a powerhouse for global economics, and has become a very important manufacturing base in the world (Zhao et al., 2008). Multinational firms have been increasing their efforts to operate their businesses alone or collaboratively in China. More Chinese firms are actively engaged in international supply channels. As such, scholars are increasingly considering China as an ideal setting to conduct supply chain research (Liu et al., 2009). Considering that the economic development across regions is uneven in China, the survey was conducted in four relatively well-developed cities (Shanghai, Nanjing, Suzhou, and Hefei) located in the Yangtze River delta, the region with the highest GDP per capita in China. To obtain a representative sample, 1,000 firms were chosen randomly from the lists of companies provided by government agencies administering major industrial parks in these cities. The lists included names and contact information of the key respondents, such as CEOs and senior vice presidents of operations, in addition to the names and addresses of the companies. First, key informants were sent invitations to participate in the survey. The invitation included an explanation of how their contact details were obtained, the research objectives, and a request to participate in the study. After obtaining the consent to participate in the survey, questionnaires were sent to the potential respondents. The returned questionnaires totaled 289, and 43 incomplete questionnaires were discarded. Thus, 246 useful questionnaires were obtained, representing a response rate of approximately 24.6%. Following Armstrong and Overton (1977), the potential nonresponse bias was tested. Table I shows the demographic information of the samples. 15

16 N Percentage Position of Respondents CEO/managing director % Supply chain manager % Purchasing/logistics manager % General manager % Production manager % Others % Industry Manufacturing % Service % Ownership State-owned % Privately owned % Foreign-controlled % Number of Employees % % 500 1, % 1,000 2, % More than 2, % Number of IT Employees % % % More than % Table I Sample demographic (n=246) 4.1 Measures The instrument was developed based on previously validated measures. The domain of each construct, in terms of what should be included or excluded, was clearly defined. Furthermore, the relevant scales were found in the related literature. All measures were assessed with 5- point Likert scales, ranging from strongly disagree to strongly agree. Specifically, the five items that measure information sharing were from Zhou and Benton (2007) and Cai et al. 16

17 (2010). The first three items measured the extent to which the firm shares information about the forecast, delivery schedule, and order status with channel partners. The other two items assessed the extent to which partners are provided with information that might help them, and the degree to which the firm keeps each other informed about events or changes that may affect the other party. The five items measuring operational coordination were modified from Kandemir et al. (2006), Narasimhan and Das (2001), and Lee and Whang (2004). Four items measured the extent to which the firm coordinates order execution, plans engineering change, conducts service support, and introduces new products/services to partners. Another item assessed the general extent to which the firm coordinates extensively with partners across the supply chain. For the items of market orientation, the scales from Lukas and Ferrell (2000) were used. Specifically, three items were for competitor orientation:(1) sharing information concerning competitor strategies within the firm; (2) discussing competitor strengths and strategies among top managers; and (3) targeting customers where the firm has an opportunity for competitive advantage. Five items assessed customer orientation: (1) monitoring the level of commitment and orientation to serve customer needs; (2) driving objectives with customer satisfaction; (3) developing competitive advantage based on the understanding of customer needs; (4) driving business strategies with beliefs about creating great value for customers; and (5) measuring customer satisfaction systematically and frequently. Moreover, interfunctional coordination was considered as the control variable and measured with four items: (1) integration of business function to serve the target market; (2) communication of customer experiences across business functions; (3) visit of top managers to current and prospective customers; and (4) common understanding of how to contribute to creating customer value. 17

18 Chen et al. (2004) propose that, given the difficulty in collecting objective data on the performance issues, testing the perceptions of executives regarding firm performance is appropriate. Therefore, the three aspects of firm performance were measured by testing the perceptions of the senior or middle executives of their firm s performance relative to that of key competitors. In particular, the items measuring business performance were adapted from Carr and Pearson (1999), including return on investment, profits as a percentage of sales, net income before tax, and the present value of the firm. Operational performance items were adapted from Rai et al. (2006) and Ravichandran and Lertwongsatiem (2005) to assess product delivery cycle time, the speed of entering new markets, and the rate of bringing new products/services to the market. Finally, three other control variables that might affect firm performance were included: ownership, industry, and firm size. First, a dummy variable was used for the industry, with IND=1 and IND=0 for the manufacturing and service industries, respectively. Second, dummy variables were used for the three categories of ownership: state-owned, privately owned, and foreign-controlled. Finally, the size of the firm was measured by the number of full-time employees. 5. Data Analysis and Results 5.1 Common method bias In the current study, collected data came from a single source at one point in time, which might result in a common method bias. To ensure that such bias is not sufficiently to challenge the validity of the results, Harmon s one-factor test was employed. The results indicate that all the items could be categorized into seven constructs, with eigenvalues greater than 1.0, accounting for 64.23% of the variance, with the first construct accounting for 11.40% of the variance. The results further indicate that the common method bias was not 18

19 significant in the present study (Carr, 2007). In contrast, the comparison of the fit between the one-factor model and the measurement model further ensured that the common method bias was not significant. The results show that the fit of the one-factor model (χ 2 = , d.f.=405) was considerably worse (p<0.01) than the fit of the proposed model (χ 2 =718.06, d.f.= 384), which further suggests that the common method bias will not affect the findings of the present study. 5.2 Measurement validity The convergent validity (loading, composite reliability, average variance extracted AVE), and discriminant validity (AVE and interconstruct correlations) of measurement were tested. As shown in Table II, the loadings of all items were greater than 0.70, with the exception of OPC3 (0.68). Although the last item did not meet the 0.70 criterion, it was significant at the level, and was retained in the analysis to ensure content validity. Furthermore, the results show that Cronbach s alpha ranged from 0.73 to 0.87, and that the composite reliability values ranged from 0.84 to 0.91, which are both above the 0.70 recommended level (Hair et al., 2006). The AVE scores for every construct ranged from 0.56 to 0.72, which are higher than the 0.50 recommended benchmark. All the results indicate that the items demonstrated adequate convergent validity. Furthermore, as Table III shows, the square root of AVEs for each construct, which is presented on the diagonal, was greater than the correlations between constructs. This result indicates that none of the constructs shared more variance with another construct than with its own measures. Therefore, the measurement achieved adequate discriminant validity. 19

20 Construct Items Loading Cronbach s alpha Composite Reliability AVE Information IFS sharing IFS Operational Coordination Customer Orientation Competitor Orientation Operational Performance Business Performance Interfunctional Coordination IFS IFS IFS OPC OPC OPC OPC OPC CUO CUO CUO CUO CUO CPO CPO CPO OPP OPP OPP OPP BUP BUP BUP BUP IFC IFC IFC IFC Table II Results of Confirmatory Factor Analysis 20

21 Mean S.D Information sharing Operational coordination Customer orientation Competitor orientation Operational performance Business performance Interfunctional coordination Dummy Variable (Manu.) Dummy Variable (State) Dummy Variable (Private) Firm size Note: The diagonal elements are the square roots of AVEs. Table III Mean, standard deviation, and correlation 5.3 Hypotheses testing Hierarchical regression analysis was used to test the hypotheses. To minimize the possibility of multicollinearity issue, the independent variables and moderators were mean-centered. The dummy variables of industry and ownership, and the control variables, firm size, and IT department size were considered in the analysis. The results in Table IV (Model 3) show that both information sharing (β=0.15, p<0.05) and operational coordination (β=0.15, p<0.05) had significant and positive impacts on operational performance. This finding supports H1a and H2a. However, as shown in Model 6, the path coefficients from information sharing to business performance (β=-0.02) were not significant, whereas the path coefficients from operational coordination to business performance (β=0.23, p<0.01) were significant. As such, H1b is not supported, whereas H2b is supported. Operational Performance Business Performance Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Interfunctional coordination 0.35** 0.27** 0.29** 0.38** 0.26** 0.28** Dummy Variable (Manu.) Dummy Variable (State) Dummy Variable (Private) Table IV Results regression analysis of 21

22 Firm Size Information Sharing (IFS) 0.16* 0.13* 0.15* Operational Coordination (OPC) 0.13* 0.15* 0.15* 0.22* 0.22** 0.23** Customer Orientation (CUO) 0.16* 0.26** Competitor Orientation (CPO) IFS*CUO OPC*CUO 0.19* 0.19* IFS*CPO * OPC*CPO 0.17* 0.05 R Adjust R F 19.82** 16.22** 14.94** 0.26** 12.01** 10.74** *p<0.05; **p<0.01 (two-tailed) Finally, the moderating effects of market orientation on the relationships between SCI and firm performance were tested. Figures 2 and 3, based on the graphical procedure of Aiken and West (1991), summarize the results for H3 and H4. Customer and competitor orientation were assigned the values of one standard deviation above and below their means to plot their moderating effects. Table IV and the figures show that the positive relationship between SCI and firm performance is strengthened by customer and competitor orientation in various ways. Specifically, the results show that customer orientation can positively moderate the relationship between operational coordination and firm performance (β=0.19, p<0.05 for operational performance, Figure 2a; and β=0.19, p<0.05 for business performance, Figure 2b). The results also reveal that competitor orientation positively moderates the relationship between operational coordination and operational performance (β=0.17, p<0.05, Figure 3a), and the association between information sharing and business performance (β=0.17, p<0.05, Figure 3b). These findings provide partial support for the hypotheses H3 and H4. a. Operational performance b. Business performance 22

23 Operational Performance Business Performance Operational Performance Business Performance Low OPC Low Customer Orientation High Customer Orientation High OPC Low OPC Low Customer Orientation High Customer Orientation High OPC Figure 2 Moderating effects of customer orientation on the relationships between SCI and firm performance a. Operational performance b. Business performance Low OPC Low Competitor Orientation High Competitor Orientation High OPC Low IFS Low Competitor Orientation High Competitor Orientation High IFS Figure 3 Moderating effects of competitor orientation on the relationships between SCI and firm performance 6. Discussion Hierarchical regression analysis shows that the control variable of interfunctional collaboration has significant effects on both operational and business performance. As the basic dimension of market orientation, interfunctional collaboration helps firms achieve better performance in the supply chain context. The other control variable (i.e., firm size) and the two dummy variables (i.e., industry type and ownership) were not identified as significant factors that can create an impact on firm performance. 6.1 SCI and firm performance 23

24 The results suggest that information sharing affects operational and business performance differently. Specifically, information sharing has a positive influence on operational performance. This finding is consistent with the research conducted in mature market economies, that is, information sharing is an effective way to resolve the problem of information asymmetry in a supply chain (Lee, 2000; Lee and Whang, 2004; Rai et al., 2006) because it enables firms to acquire relevant historical and current information quickly, which facilitates decision making during task execution (Rosenzweig, 2009). The finding suggests that, in the emerging economy of China, information sharing is an effective practice that will improve operational performance, such as speedy delivery, entry to new markets, and new products/services introduction. In addition, the results show that information sharing does not have a significant direct impact on business performance, which is inconsistent with the previous studies conducted in mature market economies. In contrast, the results show that a greater extent of operational coordination leads to both better operational and business performance. This finding indicates that operational coordination facilitates firms in China to exchange, recombine, and create knowledge with supply chain partners, which, in turn, enhances both their operational and business performance. A possible explanation for the insignificant direct effects of information sharing on business performance is that, in the emerging economy of China, heavy reliance on informal ties limits the role of the information-sharing component of SCI in helping firms reap superior profit margins. According to Sheng et al. (2011), firms in China achieve superior profit margins by acquiring critical information through their guanxi with government officers and important personnel at partner firms. Under such circumstance, information sharing, which is the basic degree of SCI, appears to be a necessary practice to remain competitive (i.e., earn average profit margins) but not sufficient to earn supernormal profits 24

25 (Kulp et al., 2004a, p. 440). To earn above-industry average margins, the firm must shift from information sharing to collaboration and cooperation (Kulp et al., 2004b). Indeed, reinforcing this notion, the findings reveal that information sharing helps the firm enhance operational performance, but not business performance, whereas operational coordination helps the firm improve both types of performance. 6.2 Impact of market orientation on the relationship between SCI and firm performance The results indicate that market orientation (i.e., customer or competitor orientation), moderates the relationship between SCI and firm performance. The moderating effects vary across the relationships between integration levels and performance aspects. Specifically, this present study shows that both customer and competitor orientation do not amplify the impact of information sharing on operational performance in China. Although this finding is somewhat surprising, it highlights the essential role of information sharing in the market responsiveness of firms in China. As Dong et al. (2009) contend, in the current digital market, supply chain management is shifting from the connection of physical processes to information-based integration across upstream and downstream operations. In other words, due to the cut-throat competition and increasingly complex supply chains, firms in China are required to work closely with their partners in scanning the environment for information to support their decision-making. Thus, regardless of the firm s orientation, widely implemented information sharing facilitates the firm to improve the effectiveness and efficiency of its operations. Similarly, competitor orientation, rather than customer orientation, moderates the relationship between information sharing and business performance. Focusing on competitors helps firms reap business-related benefits from information sharing. Prior studies argue that, although competitor orientation enables a firm to gather information about competitors and to 25

26 emulate successful moves before the competitor earns supernormal profits, it cannot directly improve business performance (Harrison-Walker, 2001). In this situation, a competitororiented firm can work more efficiently in a manner that best utilizes the information it exchanges with channel partners across the supply chain, thereby improving business performance. The results show that both customer and competitor orientation strengthen the positive relationship between operational coordination and operational performance. This finding reinforces the notion that market orientation is indeed a learning process in which organizations learn from all aspects of their environment, including customers and competitors (Grewal and Tansuhaj, 2001 p. 70). Such a learning process enables the firm to work in conjunction with supply chain partners to redesign processes and routines at the organizational boundaries, and thereby be more responsive to customer demands and market changes. The present study further finds that customer orientation, not competitor orientation, moderates the relationship between operational coordination and business performance. The different focus of operational coordination and competitor orientation can explain the insignificant moderating effect of competitor orientation. Specifically, studies argue that a firm can earn supernormal profits from operational coordination because of the firm s focus on the interfirm trust between itself and its partners (Kulp et al., 2004b). However, competitor orientation reflects the firm s emphasis on understanding the strengths, weaknesses, capabilities, and strategies of competitors. According to Zhao and Cavusgil (2006), interfirm trust is not affected by the competitor orientation of a firm because such orientation is not directly related to business channels. Scholars (Zhou and Li, 2010 p.229)) state that in China, the fast changing nature of the Chinese market makes a competitor orientation less desirable. In the market transformation process, the Chinese market is 26

27 flooded with dysfunctional competitive behavior, such as opportunistic, unfair, or even unlawful practices (Li and Atuahene-Gima, 2001). Under such conditions, the firm would have difficulty in acquiring reliable information about its competitors, and imitating competitors may not be appropriate. As such, competitor orientation has no effect on how operational collaboration affects business performance. 7. Conclusion The objective of this current study is to explore how SCI influences firm performance in China. The results generally support the theoretical propositions on the relationships between SCI and firm performance, and show how the market orientation of the focal firm moderates the relationships. The present paper contributes three theoretical findings. First, SCI research is enriched by distinguishing two dimensions of SCI: information sharing and operational coordination. This distinction is important because information sharing and operational coordination capture two discrete facets of SCI and have different effects on firm performance. The research findings reinforce the importance of SCI as a multidimensional construct in the investigation of SCI outcome relationship (Flynn et al., 2010; Wong et al., 2011). Second, the present study contributes to the extant literature by exploring the moderating effects of the contextual factor (i.e., market orientation). The findings suggest that, in addition to their direct effects, dimensions of SCI interact with market orientation and have interactive effects on firm performance. Unlike previous studies that focus on the moderating effects of environmental uncertainty (e.g., Wong et al., 2011), evidence in the present study support the notion that a firm s own orientation can also act as an important contextual factor affecting the SCI performance relationship. 27

28 Third, the current study investigates the effect of SCI in China, a fast-growing and emerging economy. As the second largest economy in the world, China plays a critical role in the international supply chain. Thus, verifying whether the findings regarding SCI performance relationship in a mature market economy remain valid in the Chinese context (Zhao et al., 2007) is of significance and interest. Although the current study provides only a snapshot of SCI and market orientation in China, these findings extend the understanding of the value of SCI in different social, political, and economic contexts. In addition, the current study has important managerial implications for firms striving to achieve superior performance in China. First, guidelines for managers on SCI implementation are provided. The conceptualization of SCI, consisting of information sharing and operational coordination, allows managers to learn about the different stages of SCI. Second, the different effects of information sharing and operational coordination provide managers with support for making decisions on the right integration strategy for improving their performance. Finally, this current research cautions managers to note the critical role of market orientation in affecting the relationship between SCI and firm performance. In particular, customer orientation and competitor orientation can amplify the impact of SCI on firm performance. As such, managers should cultivate and promote market orientation when they implement SCI. The results and contributions of the current study must be evaluated in light of its limitations. First, the current study applied a focal firm, rather than a specific supply chain relationship, as the unit of analysis. Although this approach is applied widely in existing research, scholars suggest that collect matching information from both sides of an interfirm relationship for research conducted in the context of a supply chain would be more appropriate. Second, the research context covers firms in the emerging economy of China. The demography of the respondents may limit the generalizability of the findings. 28