Independent variables

Independent variables in the first sub-model are specific investments and power asymmetry.

Independent variables in the second sub-model are governance modes and negotiation strategies.

Specific investments

Specific investments or asset specificity is defined as the degree to which the assets that support a given transaction, or modify processes, product technologies or procedures, are tailored to it and cannot be redeployed easily outside a particular exchange relationship (Cannon et al., 2000;

Geyskens et al., 2006). Examples of specific investments are site specificity, physical specificity, human asset specificity, brand name capital, dedicated assets, and temporal specificity (Reve & Levitt, 1984; Williamson, 1985, 1991). Since switching costs arise if a firm is changes partners, these investments create dependency on a specific partner.

There seems to be consistency in the literature regarding the definition and the operationalization of this construct. The following items are based on empirical studies (Buvik

& John, 2000; Cannon et al., 2000; Haugland & Reve, 1994; Heide & John, 1990; Heide &

Stump, 1995; Joshi & Campbell, 2003; Rokkan et al., 2003) (eight items, seven-point scale, anchored by “strongly disagree” to “strongly agree”):

• Supplying firm’s specific investments

With regard to investments that our company dedicates for this particular exchange, our company…

1. spent significant resources in reorganizing/adjusting our own organization.

2. spent resources on training and developing our employees.

3. has made significant investments in tools and equipment.

4. has carried out considerable product adjustments to meet the requirements from this customer.

5. has made several adjustments to adapt to this customer’s technological norms and standards.

6. has acquired competence, which has a limited value for us if the exchange is terminated or our company stops doing business with this customer.

7. has used considerable time and resources to build the relationship with this customer.

8. will have a great loss if this exchange terminates.

• Buying firm’s specific investments

With regard to investments that this customer dedicates for this particular exchange, in your perception this customer…

1. spent significant resources in reorganizing/adjusting their organization.

2. spent resources on training and developing their employees.

3. has made significant investments in tools and equipment.

4. has carried out considerable product/service adjustments to meet the requirements from us.

5. has made several adjustments to adapt to our technological norms and standards.

6. has acquired competence, which has a limited value for them if the exchange is terminated or they stop doing business with us.

7. has used considerable time and resources to build the relationship with us.

8. will have a great loss if this exchange terminates.

Power structure

Power structure describes what type of relationshipa firm has with its partner. It is divided into two types: asymmetry and symmetry. These two types represent opposite ends. A low degree of power asymmetry is a high degree of power symmetry, and vice versa. Both types of power can be measured. Many research studies have operationalized power asymmetry. Therefore, reviewing the measure of asymmetric power is the starting point.

Power asymmetry has been defined as the difference between a firm’s power and its partner’s power in a dyad (Gundlach & Cadotte, 1994; Kumar etal., 1995). Power is the ability of a firm

to control or influence the decision variables of its partner (Anderson & Narus, 1990; El-Ansary

& Stern, 1972; Etgar, 1977; Hunt & Nevin, 1974). Ingeneral, the measure of asymmetric power can be constructed in two ways: direct and indict operationalization.

First, direct operationalization distinguishes the respondents in groups between symmetric and asymmetric-power relationships. The measure can reflect power either by (a) the influence of one firm on another (e.g. Brown, Lusch, & Nicholson; 1995) or (b) the dependence between the partners (e.g. Jambulingam, Kathuria, & Nevin; 2011)

Brown, Lusch, and Nicholson (1995) directly classify the respondents into three groups according to decision variable scores. The groups with the highest and lowest scores are said to belong to an asymmetric-power relationship. According to this approach, we can distinguish between symmetric and asymmetric-power relationships, but we cannot identify what type of firm comprises certain relationships. For example, a symmetric-power relationship can result from mutual high power (i.e., both partners have a high degree of power over each other) or mutual low power (i.e., both partners have a low degree of power over each other).

The categorical scale, or dummy variable, developed by Jambulingam, Kathuria, and Nevin (2011), based on Emerson’s (1962) power dependence theory, can both distinguish respondents between symmetric and asymmetric relationships and identify the type of symmetric power between mutually-dependent relationships or no-interdependent relationships. Many studies (e.g., El-Ansary & Stern, 1972; Frazier & Summers, 1986; Spekman, 1979) operationalize the measurement of power on the concept of power dependence. That is, the power of Aover B is equal to, and based on, the dependence of B on A.

Second, the asymmetric power construct can be operationalized by calculating the absolute value of the difference between a firm’s power and its partner’s power (Bucklin & Sengupta, 1993; Kumar et al., 1995). The amount of power of both firms is measured and the difference of these two values is calculated. The power-composition of the relationship can be identified using this approach.

This study adopts the first approach to acquire richer data and be methodologically compatible with, and adjusted to, the empirical setting of this research. The approach is to measure the power structure directly. The following items are based on Jambulingam et al. (2011) (with the measure using dependence to reflect power [Emerson, 1962]):

• Power structure

Please check the one statement below that best describes your relationship with this customer.

1. Our company is more dependent on this customer.

2. This customer is more dependent on our company.

3. Our firm and this customer are equally dependent oneach other.

4. Our firm is not dependent on this customer, and this customer is not dependent on our firm.

Aggressive negotiation strategy

Aggressive negotiation strategy refers to the interaction pattern used by exchange partners to develop conflict solutions through the implicit or explicit use of threats, persuasive arguments, and punishments (Ganesan, 1993). The following items are based on Ganesan (1993) (eight items, seven-point scale, anchored by “strongly disagree” to “strongly agree”)

When our company and this customer interact with each other, both parties...

1. press to get their points made.

2. make efforts to get their way.

3. are committed to their initial position during the negotiation.

4. try to win their position.

5. threaten to break off negotiations with each other.

6. indicate that we wanted to deal with other alternative partner.

7. make implicit threats to each other.

8. express displeasure with each other’s behaviour.

Problem-solving negotiation strategy

Problem-solving negotiation strategy refers to the interaction pattern used by exchange partners to develop conflict solutions that integrate the requirements of both parties (Walton &

McKersie, 1965). The following items are based on Ganesan (1993) (six items, seven-point scale, anchored by “strongly disagree” to “stronglyagree”):

When our company and this customer interact with each other, both parties...

1. lean toward a direct discussion of the problem witheach other.

2. try to show each other the logic and benefits of their position.

3. communicate their priorities clearly to each other.

4. attempt to get all their concerns and issues in theopen.

5. tell each other their ideas and ask the other for their ideas.

6. share the problem with each other so that they can work it out.