Theoretical Background and Hypotheses

Hypotheses

A firm has a power advantage when it is relatively less dependent upon the resources of its counterpart(s), and it often leverages this power over others to achieve intended strategic goals. Social network studies have adopted betweenness centrality to measure an individual actor's power, and the extent to which it controls the resource flows in its network. As a socio-centric measure indicating the variation of the betweenness centralities of all network actors, BTC characterizes the extent to which the overall network is built around a particular group of actors serving as hubs relative to the rest of the network. A low BTC score indicates that the network resources running through various types of ties are almost equally distributed across the entire network, whereas a high score indicates that there exist particular focal firms possessing more network resources. This measure can be interpreted differently for different supply network tie types. For instance, an OEM pursuing a cost leadership strategy will try to make supply contracts as complete and detailed as possible to reduce any uncertainty, which may translate into cost savings and, as a result, the OEM will pursue unequal contracts with its supply network members. On the other hand, the lack of predictability of market changes prevents OEMs from designing complete supply contracts when they pursue market responsiveness, and this will result in cooperative, but loose, contracts containing rather general information. Regarding transactional ties, an OEM pursuing a cost leadership strategy can exploit economies of scale by focusing on a relatively small number of supply network members, whereas if that OEM is interested in responding promptly within an unsteady market, it would diversify its supply sources. This distinction is also observed for the supply networks consisting of professional and personal ties. In other words, a supply network actor devoted to cost leadership may tend to interact with a smaller range of counterparts, while it establishes a broader array of professional and personal interactions with other supply network members to be more responsive to market-led changes. Personal and professional ties in a market-responsiveness focused supply network, especially, might be expected to lead to more frequent interactions involving a greater number of actors to allow them more options in responding to an unstable environment. In this environment, information-seeking and problem-solving behaviors can be expected to dominate, resulting in more interactions with a greater number of network partners. Based on this line of reasoning, the following set of hypotheses is proposed:

Hypothesis 1A. An OEM's strategic intent of pursuing cost leadership is positively associated with the BTCs of its supply networks consisting of contractual, transactional, professional, and personal ties.

Hypothesis 1B. An OEM's strategic intent of pursuing market responsiveness is negatively associated with the BTCs of its supply networks consisting of contractual, transactional, professional, and personal ties.

A firm with more power over their counterparts also can more easily draw and absorb network resources from the rest of its network by exerting coercive or punitive pressure and, consequently, can achieve its strategic goals. In social network research, this power of an individual network actor is commonly measured by in-degree centrality, which represents the total number of ties pointing toward the actor. IDC, derived by the variation in individual actor's in-degree centrality at the network level, indicates the extent to which network resources are concentrated in particular actors. From a supply network perspective, an OEM trying to achieve cost leadership by pursuing economies of scale will have a network architecture with a relatively small group of members, which brings in more transactional, professional, and personal inflows from the rest of the network. A firm seeking market responsiveness, in contrast, will try to hedge against unexpected market changes using a diversification strategy and, as a result, will have a supply network architecture demonstrating relatively equal distributions of transactional, professional, and personal inflows across network members. The supply network in-degree centrality accounting for contractual ties may need more cautious interpretation because complete contract terms can impose institutional constraints on interorganizational transactions. More inflows of complete contracts (i.e., high in-degree centrality) thus indicate that a network actor receives the less favorable (or more restrictive) terms and conditions from its counterpart(s). In this sense, OEMs which need tight cost controls may build supply networks where a few focal firms take up more favorable (i.e., less complete) contracts showing low IDC, whereas their strategic intent of achieving market responsiveness drives the opposite consequence (i.e., supply network members have mutually favorable - that is, equally complete - contracts with others). The preceding discussion leads to the following hypotheses:

Hypothesis 2A. An OEM's strategic intent of pursuing cost leadership is positively associated with the IDCs of its supply networks consisting of transactional, professional, and personal ties, while being negatively associated with the supply networks consisting of contractual ties.

Hypothesis 2B. An OEM's strategic intent of pursuing market responsiveness is negatively associated with the IDCs of its supply networks consisting of transactional, professional and personal ties, while being positively associated with the supply networks consisting of contractual ties.

In addition, a firm may relax its own institutional constraints on other exchange partners expecting reciprocal behavior, and in doing so may make advances toward cost leadership or market responsiveness. This is true especially when both parties have complementary resources or similar sources of uncertainty and can provide more useful feedback to refine their efforts for their own benefit. Companies such as Dell and Whirlpool, for example, transformed themselves into "virtually integrated" organizations by sharing their information and knowledge on inventory level and sales forecasting with other supply network members. A network actor's use of this kind of influence on its exchange partners has been measured by out-degree centrality that denotes the number of network ties originating from the actor. As a socio-centric measure indicating the variation of the out-degree centralities of all network actors, ODC explains the extent to which particular actors distribute transactional or relational network resources to others. In other words, a high ODC score indicates that a few particular focal firms disseminate most of the transactional or relational network resources for the rest of the members, whereas a low score indicates that each member of the network has a more equal amount of those resources. This measure would be interpreted differently for each type of supply network tie. For instance, when OEMs seek cost leadership, their supply networks will have an architecture consisting of a small group of firms that send out more complete (i.e., less favorable) contract terms and a greater number of monetary exchanges for the rest of the network. They will not be very interested in establishing reciprocal professional and personal ties since those relationship-specific investments can increase switching cost as well as prevent their search for lower cost suppliers. On the other hand, OEMs pursuing market responsiveness will be more willing to initiate more professional and personal interactions with other network partners to detect potential market changes while maintaining a balanced approach toward contract completeness and quantity. This reasoning leads to the following two hypotheses:

Hypothesis 3A. An OEM's strategic intent to pursue cost leadership is positively associated with the ODCs of its supply networks consisting of contractual and transactional ties, while being negatively associated with the supply networks consisting of professional and personal ties.

Hypothesis 3B. An OEM's strategic intent of pursuing market responsiveness is negatively associated with the ODCs of its supply networks consisting of contractual and transactional ties, while being positively associated with the supply networks consisting of professional and personal ties.

Direct contacts and connections between a firm and its customers/suppliers also facilitate the exchange and distribution of organizational resources and subsequently contribute to the strategic goals and competitive advantage of the involved actors. For instance, Japanese automobile manufacturers such as Toyota and Nissan have endeavored to maintain direct connections with non-immediate suppliers by means of different supplier associations and considerable owner interest in their suppliers. Those efforts enabled them to oversee the whole supply network by supplementing the potential shortcomings of a hierarchical supply network, characterized by a reliance on a limited number of first-tier suppliers. In social network research, such connectivity among network actors has been measured by GCC that denotes how cliquish (or tightly knit) a network is as a whole. In plain terms, it measures the probability that the friend of John's friend is also John's friend. In a supply network with a low GCC, network actors interact with only a few contiguous others which results in a hierarchical (i.e., more cliquish) architecture as a whole. A high coefficient value, in contrast, suggests more actors are directly connected to one another manifesting lateral (i.e., less cliquish) network architecture. From a supply network perspective, an OEM's intent to acquire cost leadership will drive it to build a hierarchical supply network which allows for easier and more thorough control on a limited number of major suppliers. A firm interested in achieving market responsiveness, on the other hand, will try to establish direct connections with as many down-tier suppliers as possible in order to perceive and respond to changing market circumstances, which subsequently leads to lateral supply network architecture. Accordingly, this study investigates the following set of hypotheses:

Hypothesis 4A. An OEM's strategic intent of pursuing cost leadership is negatively associated with the GCCs of its supply networks consisting of contractual, transactional, professional, and personal ties.

Hypothesis 4B. An OEM's strategic intent of pursuing market responsiveness is positively associated with the GCCs of its supply networks consisting of contractual, transactional, professional, and personal ties.