A Comparison between U.S. Buyers and EU Buyers from Chinese Suppliers’ Perspective Dong Shen California State University-Sacramento, USA Pingsheng Tong California State University-Sacramento, USA Craig A. Kelley California State University-Sacramento, USA
The purpose of this study is to improve the understanding of business relationship between Chinese suppliers and their U.S. and EU buyers by investigating Chinese suppliers’ perceptions of these two groups of business partners. Fourteen in-depth interviews were conducted in China. The data analyses generated three factors which showed different perceptions Chinese suppliers had for their U.S. and EU buyers: buyers’ national culture, business governance mode, and business orientation. These three pairs of differences further lead to two themes: fast food versus French cuisine, two terms borrowed from food industry. Contributions and limitations were discussed. INTRODUCTION The People’s Republic of China (China), the United States (the U.S.) and the European Union (EU) are some of the key players in the international marketplace because of their large trading volumes and their critical evolving roles in international trade. China serves as a massive production facility for the U.S. and EU in many sectors. As a result, products worth of trillions of dollars are shipped from China to the U.S. and EU every year. In 2010, $365 billions of goods were exported from China to the U.S., a 23% increase from 2009 (The US-China Business Council, 2011). In the same year, EU imported €281.9 billion of goods from China, a 31% increase from 2009 (European Commission Trade, 2011). The main companies involved in these trading processes include Chinese suppliers, and the U.S. and EU buyer, who have made the billions of international trading business possible. Studying the business relationships between Chinese suppliers and their U.S. and EU buyers is critical for sustaining healthy international trade. Since the beginning of the “open-door” policy at the end of 1970’s, many Chinese companies have done business with buyers from different countries and regions in the world. This experience has showed them how business must be practiced differently from country to country and forced them to compare and
contrast their experiences in order to choose the best business partner for maximum profit. U.S. and EU buyers tend to be more dominant than those from somewhere else because in 2010, China was No.2 trading partner for both the U.S. and EU. Relational capability refers to a firm’s stored knowledge about business partners and learned ways to behave in inter-firm relationships (Dyer & Singh, 1998). The higher the relational capability, the more comfortable a firm is with its business partners because it has developed knowledge about proper procedures, policies, routines, and expectation of partners’ behaviors. How much Chinese suppliers know about their business partners, how Chinese suppliers perceive their business partners, and whether they evaluate their partners from the U.S. and EU differently are all important questions because the answers to these questions can help the buyer and supplier better communicate throughout the business process and improve business deals and practices in the long run. The research investigating the buyer-supplier relationship has generated a large body of literature. Most research has examined the buyer-supplier relationship from the buyers’ perspective (e.g., Bianchi & Saleh, 2010; Steward, Morgan, Crosby, & Kumar, 2010). Meanwhile, when international trading is the focus, studies often select developed countries over developing countries (e.g., Kim & Oh, 2002; Lye & Hamilto, 2001; Skarmeas, Katsikeas, & Schlegelmilch, 2002). In order to fill gaps in both streams of research, this study examined the business relationship between Chinese suppliers and their U.S. and EU buyers from the Chinese suppliers’ perspective. Specifically, the objective of this study is twofold: (1) to compare and contrast Chinese suppliers’ evaluations of their business relationship between the U.S. buyers and EU buyers; and (2) to explore the theoretical reasoning behind the evaluations which contribute to the perception differences if the differences exist. The textile and clothing (T & C) sector was chosen to be the focus of this study. The T & C sector was selected for two reasons. First, the U.S. and EU are the two principal buyers of China’s textiles and clothing products. China's share of the U.S. apparel import market rose from 20% in 2003 up to 36% share in 2009, and its share of the E.U. import market rose from 22% in 2001 to 43% in 2008 (McCann, 2011). Therefore, studying the business relationship between China and the U.S. and EU in the T & C sector is critical for all three sides. Second, the U.S.-China textile and apparel business, and the EU-China textile and apparel business, have hardly been able to avoid both economic and political conflicts as well as the constant intervention of trade policy in the last three decades. Choosing a sector which has gone through many ups and downs, which have created many obstacles and misunderstanding between the suppliers and buyers, can potentially generate the most valuable and representative insight and information. Johnson, Sohi, and Grewal (2004) suggest that in a highly turbulent environment, the relational capability is even more important in building favorable relationships. As China’s T & C industries enter a free competition market, Chinese suppliers have been experiencing a high level of uncertainty and must develop their relational capability quickly in order to work closely and effectively with their international buyers. Learning occurs through information and knowledge derived from everyday interactions and experience (Cohen & Levinthal, 1990). As a result, Chinese suppliers observe, learn, and process gathered information from their experience with the U.S. and EU buyers and quickly profile the U.S. and EU buyers in terms of their perceived relationship styles. In other words, it is a critical time that the U.S. and EU buyers must understand Chinese suppliers’ perception about them and build favorable business relationship by ensuring accurate perceptions and developing mutual understandings. This research bridges the buyers and the suppliers in this vital relationship building stage and facilitates market communication. LITERATURE REVIEW Suppliers’ Perception of Buyer-Supplier Relationship Relationship marketing has been one of the main topics studied in the business/marketing literature. In reviewing studies of buyer-supplier relationships published in four prominent U.S.-based academic journals between 1986 and 2005, Terpend, Tyler, Krause, and Handfield (2008) found that even though the number of studies examining buyer practices had declined as a percentage of the total publication, the
buyer-supplier relationship was still investigated mainly by using the buyer’s indicators, such as buyer mechanisms and buyer financial outcomes. When the relationship between Chinese suppliers and their foreign buyers is investigated, buyers’ perceptions and evaluations are dominant in the current literature. As a result, the negative factors in the relationship between Chinese suppliers and their foreign buyers often come from the China side, such as delays in delivery and relatively high cost (Zhang & Goffin, 2001), unwillingness to switch to small quantities and frequent deliveries (Kaiser, 1997), and poor quality of locally produced components (Lawler & Ling, 1997). Both buyers and supplier perceptions should be considered when establishing a business relationship. The buyer-supplier relationship is often perceived differently between the buyers and suppliers. The limited literature in buyer-supplier relationship management from the supplier’s perspective provides some evidence of inconsistent common ground between the buyers and suppliers, which becomes obstacles for further exploration of the buyer-supplier relationship. For example, when relationship success is measured from the buyers’ perspective, two of the most common predictors are the buyers’ perception of the supplier’s performance or the buyer’s future intentions with regard to relationship continuity. When relationship success is measured from the supplier’s perspective, however, mean continuity and perceptions of satisfaction and performance are often the two indicators (Ghijsen, Semeijin, & Ernstson, 2010). In a same supply chain relationship, Ambrose, Marshall, and Lynch (2010) found that buyers and suppliers had significantly different perceptions of commitment, adaptation, communication, resource dependence, trust, uncertainty, power, and relationship success after they examined 120 matched dyads. Missing the mutual understanding and standardized concepts between the buyers and suppliers makes it difficult to bring both sides together for further comparison and communication. Therefore, obtaining the knowledge from the supplier’s perspective, the side which has been neglected historically, is a critical step to create a better communication between buyers and suppliers. The Buyer-Supplier Relationship in International Market Unlike several decades ago, most countries in the world today have become involved in the international business. In many sectors, such as automobile, computer, and apparel, their final products are often processed by an international assembly and production line composed of multiple counties, which shows the inevitable reality of doing business with foreign companies and partners. Doing business with a foreign company creates many financial opportunities but brings new challenges and problems at the same time as well (WTO Entry Brings Opportunity, Challenge to China, 2001). The current literature presents several key factors which have consistently strong effects on a buyersupplier relationship when the buyer-supplier relationship is positioned on a domestic platform. First, trust has been identified as essential to relationship building and several studies have proved trust as a determinate of relational outcomes (Hill, Eckerd, Wilson, & Greer, 2009; Ireland & Webb, 2007). Another key indicator of buyer-supplier relationship identified by the current literature is communication. Knemeyer and Murphy (2004) found that a good communication between buyers and their suppliers can improve operational performance and collaboration. Furthermore, as a related factor, information sharing can improve cycle time reduction (Hult, Ketchen, & Slater, 2005), buyer’s financial performance and competitive position (Tan, 2002; Vickery, Jayaram, Droge, & Calantone, 2003), and supplier’s commitment and supplier selection (Kannan & Tan, 2002; Kwon & Suh, 2004). When trust, communication, and information sharing remain the most often included variables of interest when both buyers and suppliers come from the same region, their relationship and the mechanism can become much more complicated if the relationship is placed on an international platform. In the international marketplace, one of the very first factors recognized in relationship marketing is culture. When the cultural background is different for not only the individual buyers and suppliers, but the overall business organization, the factors discussed about can present different characteristics. For example, trust is found to be deteriorated in an international buyer-supplier relationship when two international high-tech firms were studied by Bell, Oppenheimer, and Bastien (2002). Even though in many cases, cultural differences do not have a direct impact on buyer-supplier relationship, indirectly it
can contribute to the final failure of an international relationship by mediating or moderating such factors as trust, communication, or commitment (Monczka, Petersen, Handfield, & Ragatz, 1998). Culture can create differences and distance. Cultural distance is a potentially powerful determinant of the way relationships are developed (Feldman & Thompson, 1993; Meschi & Roger, 1994; Tse, Lee, & Vertinsky, 1988). That does not mean that if a buyer and supplier come from same cultural background, there is no difference between them. However, different cultural backgrounds can further push the buyer and supplier apart, which further challenge their relationship in the international marketplace. When combining the literature of relationship marketing in international market and domestic marketing, Trimarchi, Liesch, and Tamaschke (2010) identified five types of distance: social distance, geographic distance, time distance, technical distance, and psychic distance. Specifically, social distance is created by the unfamiliarity of how to do business and operate different functions between the buyer and supplier. For example, the process of initiating and maintaining a business can be very different between the two firms and the differences could be further deeper when the firms come from different cultures. Geographic distance represents the physical distance between firms. When a buyer buys products from a local supplier, the whole mechanism and dynamic can be very different from the ones when they buy products from a supplier who is the other side of the world. Time distance refers to the time taken to establish contact, place orders and the actual transfer of products. When the culture factor comes into the picture, very often the buyers and suppliers can even have totally different understanding of time and their can have varied reaction to time sensibility. Technical distance is the differences between each firm's product and process. This distance often becomes the reason why buyers and suppliers initiate their business. For example, U.S. buyers tend to possess more advanced technology than their Chinese suppliers while Chinese suppliers have cheaper labors costs that attract the U.S. buyers. This phenomenon is very obvious in several sectors, especially in the T & C sector. However, when the technical distance creates the business opportunities, it can also become obstacles in the business later on. Psychic distance refers to factors preventing or disturbing the flows of information between firms and foreign markets, including for example, differences in levels of country development, language, culture, levels of education and political systems (Conway & Swift, 2000; Johanson & Wiedersheim-Paul, 1975). All five types of distance can exist in a buyer-supplier relationship in both international business and domestic business. However, the entry of cultural factor may change the whole dynamic of how these five distances work in an international marketplace. This study uses these five distances as a foundational framework to explore the Chinese suppliers’ perception of their U.S. and EU buyers for several reasons. First, the five distances provide a relatively comprehensive structure developed in the current literature that can capture the buyer-supplier relationship in international market. However, the five distances are not specific enough to present particular determinants of buyer-supplier relationship that can work well in this study. Because lacking the research on the buyer-supplier relationship from the suppliers’ perspective in the current literature requires more empirical studies to explore and identify the specific factors which may affect how suppliers evaluate their buyers from different counties. When exploratory purpose is the main focus of this study, a more general guideline rather than a particular model would be more appropriate. Based on the above literature review and discussion, we developed the following basic research questions: (1) What are the factors which have impact on Chinese suppliers’ perceptions of their U.S. buyers and EU buyers? (2) How do Chinese suppliers’ perceive the U.S. buyers and EU buyers differently in terms of the factors identified above? (3) How to relate the factors identified above to the five distance structure? METHOD
We chose qualitative methods over quantitative methods for this study because of the purpose of this study. Quantitative research methods work better for validating and testing theories, while qualitative methods are more suitable for grounded theory building (Creswell, 2003). Due to the fact that the current literature lacks research on the buyer-supplier relationship in the international market from the suppliers’ perspective, the main goal of this study is to explore the dynamic reality and seek in-depth description of Chinese suppliers’ perceptions. Therefore, a qualitative method would work better and specifically, we chose in-depth interview for data collection. We chose semi-structured interview due to the following two reasons. First, it can guarantee the likelihood of comparison across different interviews due to the structured format. Second, it can provide the possibility of identifying unexpected findings because of the open flexibility during each interview. The interviewees for this study needs to meet the following criteria: (1) having the required legal exporting license; (2) being actively involved in exporting T & C products; and (3) exporting products to both the U.S. and EU. According to Creswell (2003), a qualitative study follows an inductive process including steps of data collection, data organization, and data analysis. Based on this inductive process, we followed the following process: (1) gather information; (2) interview; (3) identify terms or categories through data analyses; (4) look for broad themes, patterns, generalizations, or theories from terms or categories; and (5) explore possible generalizations to existing theories. A qualitative study often develops two types of research questions: central questions and associated sub-questions. A central question is the broadest question that can be asked in a study, whereas an associated sub-question can be a topic specifically explored in interviews (Creswell, 2003). By following this particular strategy, we developed the following central questions and associated sub-questions. The central research questions include: (1) what are your overall perceptions and evaluations of your U.S. buyers? And (2) what are your overall perceptions and evaluations of your EU buyers? The associated sub-questions include: (1) what do you enjoy the most when you do business with your U.S. buyers? (2) What do you enjoy the most when you do business with your EU buyers? (3) What frustrates you the most when you do business with your U.S. buyer? (4) What frustrates you the most when you do business with your EU buyer? And (5) do you perceive these two groups of buyers differently? (6) If yes, how and why? We developed a list of potential interviewees by using a business directory and through personal contacts. In the end, all the interviewees were obtained through personal contacts. It is not surprising that personal network and personal contacts play a key role in China’s business world (Jayaraman, 2009). Finally, a convenience sample of 14 interviews in three main regions was finalized: the greater Beijing region which represented Northern China, the greater Shanghai region represented Central China, and Fujian province represented Southern China. As the capital of China, Beijing is its political, economic, and business center. Being located in or very close to the capital has made businesses there a distinctive group. The greater Shanghai region has a long history of T & C production and trading. A lot of T & C international trade originates from there. Southern China has been developing extremely rapidly in the last decade mainly relying on soft-goods industries, including T & C. The businesses there are newer and more competitive than those in other regions, and Fujian province is a good representative of this region (Chang, 2010). DATA ANALYSIS AND RESULTS Fourteen in-depth interviews were conducted ranging from one hour to two and one-half hours. Among them, three were from the Beijing area, another three were in the Fuzhou area in Fujian province, and the last eight were from the areas near Shanghai. Please see Table 1 for a summary of the interviewees. The companies interviewed represented exporters in the following apparel categories: lingerie, suits, casual wear, sportswear, professional uniforms, and knit casual wear. Their U.S. buyers included discount stores such as Wal-Mart and Target; department stores such as Macy’s and Kohl’s; and specialty brands such as the Gap, Calvin Klein, Reebok, Ann Taylor, and Talbot. The EU buyers included
French department stores such as Etan and French specialty brands such as Lacoste and La Redoute, Spanish department stores such as Zara and Spanish specialty brands such as Mango, and Italian stores such as Coin and Italian specialty brands such as Dek’her. TABLE 1 SUMMARY OF THE INTERVIEW PARTICIPANTS No. 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 1 10 1 11 1 12 1 13 1 14
Location
Title
Age
Gender
Years in Business
Hangzhou
President
58
Male
26
Beijing
Office Manager
41
Female
10
Beijing
Executive General Manager
44
Female
18
Beijing
Head of Foreign Trade Dept.
39
Male
7
Fuzhou
General Manager
45
Male
13
Fuzhou
General Manager
38
Male
11
Fuzhou
General Manager
40
Female
9
Suzhou
General Manager
53
Male
28
Wujiang
General Manager
35
Male
6
Wujiang
General Manager
42
Male
5
Wujiang
General Manager
38
Male
7
Wujiang
General Manager
39
Female
5
Wuxi
Vice General Manager
48
Male
16
Suzhou
Manager
36
Male
6
The original semi-structured interview outline was developed in English. Then we translated all the questions to Chinese for the final interviews. All the interview notes were translated from Chinese to English and then back translated to Chinese by two Chinese-English speakers in order to reach consistency. After that, the same two researchers read through all the data in order to reach its overall meaning. Then detailed analysis started with the coding process in which the data were organized into categories and then labeled with a term (Creswell, 2003). The identified categories/terms include (1) buyers’ national culture; (2) buyers’ business governance modes; and (3) buyers’ business orientation. Creswell (2003) believes that validity is viewed as strength of qualitative studies. In order to increase validity, researchers can aim to identify and discuss one or more strategies available to check the accuracy of the findings. Among different strategies, we chose to use the rich and thick description to convey the findings in order to transport readers to the setting and give the discussion an element of shared experiences. National Culture The first term identified during data analysis is national culture. One of the simplest models for understanding the differences among national cultures is developed by Hall (1976), who relates how cultures vary in international communication to the extent to which the context of a message is important as the message itself. The term context refers to the way in which one communicates and especially the circumstances surrounding communications (Ma, 2007). In this connection, Hall (1976) distinguished two types of cultures: high-context and low-context cultures. In high-context cultures, the majority of the information communicated is implicitly vested in the context, which means much of the meaning in communication is conveyed indirectly through the context surrounding the message (Steers & Nardon, 2006). Individuals in high-context cultures tend to use nonverbal language such as facial expression, voice, body language, or gesture in their communication. Therefore, the main communication depends on contextual and social cues for meaning in that language and communication are hidden and indirect (Thatcher, 2001). In contract, in low-context cultures there is direct and frank communication: the message itself conveys the meaning. Any background information must be explicitly expressed because most of the message is carried by the words themselves rather than the context in which the words are expressed. Individuals in low-context cultures rely on explicit verbal and written messages to understand people and situation. Meaning resides primarily in explicitly coded parts of the communication rather than in the surrounding context (Thatcher, 2001). The interview data in this study showed two clear different directions when the interviewees were asked about their perceptions of their U.S. buyers and EU buyers. Eight out of fourteen interviewees stated that their U.S. buyers were straight-forward and easy to communicate with. They did not need to guess any hidden meaning behinds the written words in their contracts, even though it took long time to develop and finalize a contract with their U.S. buyers due to all the specific details. In contrast, ten out of fourteen interviewees felt that it was hard to communicate with their EU buyers because they were not clear and straight-forward with many negotiating terms which led to uncertainties and unclearness once they started to work on the purchase orders. Interviewee 2: Our contracts with U.S. buyers are always very long, specific, tedious, and in details. It takes a long time to finalize every detail in the contract. However, with our EU buyers, the final contracts are short, vague, and brief. Interviewee 5: Our EU buyers are relaxed, less formal, and less organized. Most of our U.S. buyers are professional and formal with clear short and long term plans and well developed operation system. They like to use a lot of spreadsheet and lengthy and complex forms, and like to follow business rules. If they have any requests, they tend to be reasonable and fair requests most of the time. Interviewee 10: Our U.S. buyers are always very formal and up-tight. They are very explicit and direct during business negotiation and communication. They follow the business rules – their business rules, but sometimes they just stick to the rules regardless of the realty.
These findings support the previous research. Studies have showed that the U.S. is a low-context culture, where relational communication relies more on explicit, verbal expression and written communication (Bandyopadhyay, Robicheaux, & Hill, 1994; Terpstra & Dazvid, 1991). Americans often overlook external and contextual stimuli, but focus on accurate and precise communication with a lot of details and specifics (Milliman, Nason, Zhu, & De Cieri, 2002). They appreciate facts and proof, and they are used to detailed communication sequences and clear processes (Park & Jun, 2003). EU includes a group of countries which show different national cultures. The countries in northern European, such as Germany and United Kingdom, are examples of low-context cultures, which are similar to the U.S (Hall, 1990). However, in countries like Italy, France, and Spain, the context of the information is more important than the words actually used (Biswas, Olsen, & Carlet, 1992), which fits into the high-context culture category. In those countries, subtle body posture, tone of voice, detailed rituals, and a personal title and status convey a strong message that determines behavior and sometimes they even take over the message itself. Currently, most of the EU buyers Chinese suppliers are doing business with in T & C are from Italy, France, and Spain (The Textile Icon, 2011). Many studies have showed that China is also a high-context culture, where people focus on the art of conversation and the context of the conversation rather than the information in the conversation (Ma & Jaeger, 2010; Nahavandi, 2006). It seems like that the similarity of high-context culture between Chinese suppliers and their EU buyers should create a more positive and easier-to-establish relationship between them than between Chinese suppliers and the U.S. buyers in that business relationships are often built on a cultural platform (Buttery & Wont, 1999). The reality, however, is not like that. Even though most of the fourteen interviewees presented similar perceptions of their EU buyers and they also stated similar evaluation of their U.S. buyers, they showed different preferable tendency between the U.S. and EU buyers. The relatively new Chinese suppliers are more likely to prefer the U.S. buyers over EU buyers. Because of the low-context cultural background, the U.S. buyers are direct, explicit, and professional, which makes it easier for the Chinese suppliers to communicate and negotiate with them even when the Chinese suppliers are short of experiences and network. However, Chinese suppliers realize that it becomes difficult to develop long-term business relationship with their U.S. buyers because of the opposition of low-context and high-context culture. When Chinese suppliers try to develop more personal friendship with their U.S. buyers outside of the business, which is necessary to do business in China (Buttery & Wong, 1999; Jayaraman, 2009), the U.S. buyers continue to act very formal and professional. In contrast, Chinese suppliers and their EU buyers share a similar high-context cultural background. However, different language, history, politics, and economics lead them to develop different explanations and understanding of the same facial expression, voice, body language, posture, gesture, or periods of silence in their communication. All of these differences make it not easy for Chinese suppliers and their EU buyers to develop either long-term or short-term relationship. But in the long run, among the interviewees who have developed long-term relationship with their foreign buyers, EU buyers outran the U.S. buyers. This may be contributed by their common high-context cultural background in some degree. Relationship Governance Modes The second term identified during the data analysis is relationship governance modes. Governance reflects the way exchange is coordinated and regulated and the processes and mechanisms used to organize and manage business relationships (Heide, 1994). Homburg, Krohmer, & Kiedaisch (2009) developed three different types of governance modes: (1) active market mechanism (2) trust and commitment (3) formal contracts. In an active market mechanism mode, a buying company relies on competitive bids to win business from suppliers rather than commits itself over a long period to a contracting supplier. In this governance mode, a buyer-supplier relationship is established based on price attraction. Once this attraction disappears, their relationship ends as well. Trust theory defines trust as “a confidence in an exchange partner’s reliability and integrity” (Morgan & Hunt, 1994: 23), and identified dimensions include reliability, good faith, and predictability. Commitment is defined as “an enduring desire to maintain a valued relationship” (Moorman, Zaltman, & Deshpande, 1992: 316). These are the
two key components to relationship quality (Kumar, Scheer, & Steenkamp, 1995; Johnson, et al., 2006). In a trust and commitment mode, the confidence in the business partners’ reliability, credibility, and benevolence, and the desire to build a valued relationship form the foundation of a business relationship. In this governance mode, price attraction won’t be the only deal breaker between a buyer and a supplier. In a formal contracts governance mode, detailed formal contracts serve the foundation of a business relationship in that they enable business partners to rely on formal agreement which outline their obligations and responsibilities (Gundlach & Achrol, 1993). In the interview data, eleven out of fourteen interviewees stated that their relationship with their EU buyers was developed based on the mutual trust and the enduring desire to a long-term commitment rather than one-time good deal. Because of the focus on building a long-term trusting relationship, a contract was often short and vague. Instead, these Chinese suppliers spent more time and resources building trust outside of the business with their EU buyers through cultural and social events and contacts. Meanwhile, nine interviewees commented that their U.S. buyers often developed detailed formal contracts including all specifics and they were very sensitive to any price change. Five interviewees stated that the negotiation with their U.S. buyers often boiled down to a “price war” in that a penny difference between the Chinese suppliers and their U.S. buyers may drive away a purchase order. The data showed a clear difference between the U.S. buyers and EU buyers in terms of their relationship governance modes. EU buyers have the tendency of adopting the trust and commitment governance mode, whereas the U.S. buyers lean more toward the governance modes of either active market monitoring or formal contracts. Interviewee 10: When doing business with our U.S. buyers, we often have to have formal agreements that detail the obligation of both parties. Whenever we have disagreement, we refer to our contracts to settle differences of opinions. Interviewee 14: Our EU buyers are like our family members. We rely on each other and trust each other. We spend a lot of time outside of the business rather than just at negotiation table. When hard time comes, such as price increase due to raw material cost or labor cost, we work together to fight through the tough time. The analysis of the interview data above leads to another study done by Heide and Wathne (2006), who discussed two prototypical business relationships: friend vs. businessperson. In a “friend” relationship, the two business partners follow a “logic of appropriateness” to develop a norm of flexibility which allows both sides to be modified under changing circumstances. This “friend” relationship shares many similarities with the trust and commitment governance mode discussed above in that both are developed based on appropriate and trust-worthy cooperation which can lead to a long-term relationship. In contrast, in a “businessperson” relationship, the two partners follow a “logic of consequences” to choose decisions which can maximize utility and profit. This “businessperson” relationship has a similar common ground as the active market mechanism governance mode and formal contracts governance mode because they are all price and profit driven manipulated mainly in utility maximization terms. In relation to the “friend” relationship and “businessperson” relationship, the data showed that many Chinese suppliers perceive their EU buyers as their “friends” while they view their U.S. buyers as professional “businessperson”. Interviewee 3: Our EU buyers are flexible and laid-back which makes it easier to develop friendship beyond just business relationship with them outside of the business, which is the way to do business we are used to. Interviewee 9: Even though we have decent language ability, it is not easy to make friends with our U.S. buyers or blend into their social life outside the work-related area because they stick to contracts and numbers and they have not much interest in developing closer relationship with us. Business Orientation The third identified term from data analysis is business orientation. Different business and companies are developed based on different business orientations; two of the most common ones are market orientation and production orientation. Market orientation is where a firm’s ultimate goal is to produce
products according to what the current market wants in order to satisfy consumers’ needs (Gehlhar, Regmi, Stefanou, & Zoumas, 2009). With the focus on market needs, a firm stresses the importance of gathering market information and analyzing current trends in order to create, deliver, and communicate superior customer value to its chosen target market (Kotier, 2003). Product orientation is where a firm focuses on making and providing superior and unique products by high production efficiency, low cost, and mass distribution (Gehlhar, et al., 2009). Companies with a product orientation often pay less attention or no attention to what customers need or whether the product really meets customer needs and wants ((Bodlaj & Rojsek, 2010). Instead, they focus on innovative products and development of technology because they believe that consumers will prefer products that are widely available and inexpensive. The interview data showed two different orientations between the U.S. buyers and EU buyers perceived by Chinese suppliers. Ten out of fourteen interviewees stated that their U.S. buyers often brought them big orders with pickier price requirements. They could spend days negotiating the price: sometimes just a couple of pennies difference. In regards to the products, the U.S. buyers were more flexible with the design details because they were willing to change the design details in order to bring the final production cost down. All of these descriptions support that the U.S. buyers are more leaning toward product orientation in that they seek high efficiency and low cost, and they make full use of production capacity in its international outsourcing. In contrast, twelve out of fourteen interviewees commented that their EU buyers put lots of emphases on their customers’ requirements because they do not like to change their designs to accommodate production condition. The EU buyers were less stringent on getting the lowest cost, but they cared more about what their customers need. Their orders were much smaller, yet the designs were much more complex. They were more relaxed with price negotiation, yet they had to get what their customers want. All of these characteristics fit into market orientation. Interviewee 1: Our U.S. buyers’ purchase orders are always big, so offering a competitive price is more critical (very often, it ends up with a price war) Interviewee 6: Our EU customers just focus on their customers which means that they do everything they can to satisfy their customers. So they pass every need from their customers to us without thinking about whether the need is reasonable for us. Interviewee 7: If sometimes, our products can’t meet the original design of our U.S. customers’, they are not stubborn. They are willing to work with us and make some adjustment till both sides are happy. Interviewee 12: Our U.S. buyers are more flexible with their design. They are willing to make changes to smoothen the production or lower the production cost. However, EU customers never want to make those kinds of changes. Research has showed that both business orientations have some shortcomings. If a firm chooses market orientation, their strategic decisions and behavior will be driven by what the current market wants, then their products may lack innovation and novelty since a product which a consumer already wants is not new and innovative (Gehlhar, et al., 2009). This type of firm will become an imitator rather than an innovator and run the risk of entering a “race to the bottom” with their competitors using cutthroat pricing strategies (Gehlhar, et al., 2009). If a firm chooses product orientation, they may run the risk of “running ahead of the market” losing their market and customers (Gehlhar, et al., 2009). Based on the findings discussed above, we developed Figure 1 to capture the factors identified in this study, which have impact on Chinese suppliers’ perceptions of their U.S. buyers and EU buyers. Meanwhile, the data analysis discussed above explains how these three factors affect Chinese suppliers’ perception of their U.S. buyers and EU buyers differently. After the first two of the three basic research questions stated at the end of Literature Review are answers, the last question is about how to relate these three factors to the five distance structure developed by Trimarchi, Liesch, and Tamaschke (2010): social distance, geographic distance, time distance, technical distance, and psychic distance. The first factor identified in this study, national culture (high-context vs. low-context) fits into psychic distance because psychic distance includes such examples as culture and language (Conway & Swift, 2000). The second factor, business governance modes (friend vs. businessperson), relates to a
combination of social distance and time distance, in that these two distances refer to how to do business and operate different functions. The last factor, business orientation, is associated with technical distance, because technical distance is the differences in product development and process. The last distance, geographic distance, is inevitable and obvious in an international business relationship. For each distance developed by Trimarchi, Liesch, and Tamaschke (2010), this study identified some specific determinants of buyer-supplier relationship, which can enrich the relationship literature from the suppliers’ perspective, one of the main objectives of this study. FIGURE 1 FACTORS AFFECTING CHINESE SUPPLIERS’ PERCEPTION OF THE U.S. AND EU BUYERS Buyers’ National Culture
Buyers’ Business Governance Mode
Suppliers’ Evaluation of Buyers
Buyers’ Business Orientation
TABLE 2 SUMMARY OF THE MAIN FINDINGS
Terms (Distance)
National Culture
Governance Modes
Business Orientation
(Psychic Distance)
(Social Distance & Time Distance)
(Technical Distance)
Themes Fast Food US Buyers
Low-Context
Businessmen
Product Orientation
French Cuisine EU Buyers
High-Context
Friends
Market Orientation
After combining all three factors together, the interview data presented two totally different profiles, which formed two themes in this study. For the U.S. buyers, a fast food image emerged, whereas a French cuisine theme best described EU buyers. Table 2 shows a summary of the main findings. In the theme of fast food, the Chinese suppliers perceive that the U.S. buyers bring a nice volume of work for Chinese suppliers to make full use of their excessive capacity (large orders with clear plans for predictability), but demand lower prices which significantly cuts into Chinese suppliers margin (lower profit). They are also
reliable, professional and straight-forward. They rely on well-developed processes and procedures for their business, and pay their bills on time which makes it harder for Chinese suppliers to give up the nonetheless-low profit margin. In contrast, in the theme of French cuisine, the Chinese suppliers believe that EU buyers bring in higher profits (easy on prices) with smaller orders. They are informal and lack professionism. However, they are used to developing casual and friendship-like business relationships with Chinese suppliers, and invest more time and resources outside of a formal business setting. They don’t like to develop well-established rules and processes. Instead, in order to satisfy their customers, they have to change accordingly with some degree of flexibility. CONCLUSIONS AND DISCUSSIONS The purpose of this study is to improve the understanding of business relationship between Chinese suppliers and their U.S. and EU buyers, by investigating Chinese suppliers’ perceptions of these two groups of business partners. Because learning and understanding how Chinese suppliers portrait and perceive the U.S. and EU buyers is critical for those U.S. and EU companies who have business interest in China. By conducting fourteen in-depth interviews in China, three factors were identified from the data analysis which showed different perceptions Chinese suppliers had for their U.S. and EU buyers. The three factors are (1) buyers’ national culture; (2) buyers’ business governance modes; and (3) buyers’ business orientation. When Chinese suppliers’ perceptions of their U.S. buyers fit into the low-context culture category, EU buyers are more leaning toward the high-context culture category. When Chinese suppliers portrait their U.S. buyers more like “businessmen”, their EU buyers feel more like their “friends” to Chinese suppliers. When Chinese suppliers perceive their U.S. buyers put more focus on the products, they believe their EU buyers put more emphasis on the market and their customers. These three pairs of differences lead to another two themes which can summarize these differences between the U.S. and EU buyers: fast food versus French cuisine, two concepts borrowed from food industry. In order to complete an inductive process developed by Creswell (2003) for a qualitative study, the three factors identified in this study were further explored in order to examine their relationship to the five-distance structure developed by Trimarchi, Liesch, and Tamaschke (2010). All the three factors fit into certain type of distances that not only approves this five-distance structure of buyer-supplier relationship in an international business setting but enriches this structure by identifying and presenting three particular determinants of buyer-supplier relationship in an international business relationship. For a country like China, who has been doing domestic business mainly through business relationships (“guanxi”) for many years (Buttery & Wong, 1999), it is still challenging for Chinese companies to do business with any foreign companies with the lack of necessary experiences and knowledge. It is not rare to see that a Chinese supplier gets lost and confused when their business partners are from the U.S. or EU. They have hard time identify the best potential business partner. They are not used to the process their foreign buyers follow. They have no idea of how to negotiate with those foreign buyers and they always try to figure out whether there are hidden meanings between lines during communication (Jayaraman, 2009). The findings from this study can bring China’s side of the story to the U.S. and EU companies which may lead a better communication between the buyers and suppliers. This practical contribution of this study may benefit the U.S. and EU companies who want to develop a smooth long-term business relationship with their Chinese suppliers. The U.S. and EU buyers need to understand that Chinese suppliers do not have preference of one to the other between the U.S. and EU buyers in that both “fast food” and “French cuisine” are new to them. Instead, Chinese suppliers understand that these are two totally different groups of buyers and they need to develop different strategies to smoothen their business relationship in the long run. This study explored the relationship between Chinese suppliers and their U.S. and EU buyers from the Chinese suppliers’ perspective, which filled two gaps in the current literature as discussed in Introduction. This can reflect the theoretical contribution of this study. In order to enrich the relationship marketing literature by studying from the supplier’s perspective and studying from a developing country’s
perspective, this study explored and identified particular determinants of buyer-supplier relationship in an international business setting, and further examined their relationship with existing theories in the current literature. All fourteen interviewees in this study are from the T & C sector. Even though focusing on this sector can bring insightful and valuable information to the international business, whether the findings from this study can be extended to other sectors is still unsure. This is one of the limitations of this study, which also leads to one possible topic for future studies, which is to explore the buyer-supplier relationship in other sectors. Another possible topic for future studies is to investigate how the perceptions of a buyersupplier relationship affect important exchange outcomes, such as efficiency, opportunism, and performance. Examining the perceptions and evaluations is important, but for most business practices, what matters more is the final business outcomes. This study has found that Chinese suppliers have formed different perceptions of their U.S. buyers and EU buyers, then how would the different perceptions have impacts on the final performance? This will be a critical question to answer for both business practitioners and academic scholars. Being an empirical study, this project was aimed to identify determinants of the buyer-supplier relationship between Chinese suppliers and their U.S. and EU buyers with a qualitative approach. In order to find out whether the findings in this study can be generalized, a quantitative study will be needed, which can be another topic of future studies.
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[email protected]
