Strategic networking and transactional performance : a study of the Hong Kong clothing industry

Abstract

Transaction cost analysis, relational governance and social capital issues have long drawn considerable attention from marketing scholars. In this research, transaction cost analysis, relational governance and social capital are used to understand buyer-supplier networking relationships within Hong Kong. By considering these theoretical perspectives together, this research focuses on the link between the antecedents of strategic networking, the intensity of collaborative relationships and transaction costs, between Hong Kong clothing manufacturers and their suppliers. The constructs of trust, commitment, reputation, communication, cooperation, risk management, guanxi, asset specificity, relationship continuity, size of supplier base and transaction costs are studied. Since the influence of Asian culture on strategic networking has not yet been satisfactorily explored, this research attempts to fill the gap by investigating the ways in which strategic networking between buyers and suppliers reduces transaction costs in the Hong Kong clothing manufacturing industry. A theoretical framework for networking relationships was integrated from the literature to investigate three research questions: RQ 1: How do the antecedents of strategic networking affect the intensity of collaborative relationships? RQ 2: How do the antecedents of strategic networking affect transaction costs? RQ 3: How does the intensity of collaborative relationships affect transaction costs? To answer these research questions, a two-stage approach was used, which consisted of theory building and theory testing. Study one used case research to confirm and refine the preliminary theoretical framework that was developed from the literature. Qualitative data were collected from in-depth interviews with senior executives at seven large clothing companies in Hong Kong, in which, constructs such as communication, co-operation and risk management were taken out, while the remaining antecedents of commitment, trust, reputation and guanxi were applied in the later stage of this research. Study two used a survey methodology to test the theoretical framework developed in Study one. Data were collected from 168 firms in the Hong Kong clothing industry, and analysed using structural equation modelling techniques to test and confirm the hypotheses that were specified in the model. The findings have clear implications for the three research questions. The results with regard to the first research question show that asset specificity is positively affected by commitment, relationship continuity is positively affected by trust and reputation, and although the size of the supplier base is negatively affected by trust, it is positively affected by reputation. According to the results with regard to the second research question, two antecedents of strategic networking are significantly associated with transaction costs: trust is negatively associated with transaction costs, whereas reputation is positively associated with transaction costs. The results of the third research question indicate that asset specificity relates positively to transaction costs and relationship continuity relates negatively to transaction costs. In summary, eight of the 19 sub-hypotheses are supported by the empirical findings of this study. Based on these findings, a final confirmed theoretical framework that depicts strategic networking in the Hong Kong textile and clothing industry was developed. The implications for theory are that strong strategic networking is required, and that the antecedents of commitment, trust, reputation and guanxi enhance the development of networking. In addition, transaction-specific assets can safeguard a network relationship, long-term relationships are conducive to effective transactions and managing a small number of suppliers helps to stabilise network relationships. Finally, transaction costs can be lowered due to a combination of the effects of both the antecedents of strategic networking and the intensity of collaborative relationships. This research has an additional implication: guanxi, in contradiction to the literature, has no impact on the intensity of collaborations among network members, nor on the transaction costs of strategic networks in Hong Kong. In general, guanxi is an important factor in enhancing and sustaining network relationships within a Chinese context. However, Hong Kong has established a strong political organisation, an education system and a way of life that has been intensely influenced by Western culture. Firms there have been doing business directly with Western firms for many decades, so the attitude of practitioners in Hong Kong in managing networking relationships with their business partners may not be identical to that of practitioners in other Chinese communities in Asia. This research also demonstrates to practising managers how strategic networks made up of manufacturers and suppliers are adopted and maintained, and in turn, provides guidelines on how to allocate the resources that are necessary to develop a strategic network. In conclusion, this research constitutes an important step towards understanding how strategic networking with capable partners improves the competitiveness of an enterprise.