Effects of upstream market orientation on channel relationship with supplier in Taiwanese information technology industry: the manufacturer’s perspective

Effects of upstream market orientation on channel relationship with supplier in Taiwanese information technology industry: the manufacturer’s perspective

Ben-Jeng Wang

ABSTRACT

This study used a channel conceptualization of market orientation, with a focus on the manufacturer’s perception of upstream market orientation (UMO). A total of 400 questionnaires were sent to manufacturers, results were responsed from 76 firms (response rate: 19 per cent). Data were analyzed using the LISREL 8 program. The findings indicate that the manufacturer’s perception of UMO has a definite impact on its relations with its supplier (in the industrial channel) in terms of trust, cooperative norms and commitment. Moreover, the manufacturer’s perception of trust has a direct effect on its perception of cooperative norms. However, manufacturer-perceived UMO seems to have no direct effect on the firm’s overall satisfaction with the supplier.

1. INTRODUCTION

In recent years, many researches have put great emphases on channel relationships. These scholars have demonstrated marketing relationships related to resellers in channels (Siguaw et al., 1998), effects of reseller market orientation on key relationship constructs (Baker et al., 1999), and effects caused by behaviors of salespersons and purchasers on trust, cooperative norms and satisfaction (Langerak, 2001). These potential effects of manufacturer’s market orientation on relationships with stakeholders in industrial channels influence their behavior and the importance of productive relationships with their suppliers. Langerak (2001) outlines a channel conceptualization of market orientation and its impact on channel relationships. His theory refers to the effects of manufacturers’ market-oriented behaviors on their partners in both upstream and downstream directions. Based on Langerak’s conceptualization, the following research is particularly focus on the effects of upstream market orientation on channel relationships.

2. THE CHENNEL CONCEPTUALIZAION OF UPSTREAM MARKET ORIENTATION

Langerak (2001) refers to the culture that commits the manufacturer to the continuous creation of superior value for customers by encouraging upstream and downstream market-oriented behaviors, this paper adopts Langerak’s (2001) channel conceptualization of upstream market orientation. Upstream market orientation (hereafter referred to as UMO) refers to the intelligence-generation and intelligence-dissemination activities that are necessary to understand how the know-how and skills of suppliers can be used to create superior customer value (supplier orientation), and to understand the strategies and capabilities used by upstream competitors to exploit the know-how and skill of suppliers in serving their target customers (upstream competitor orientation); and it also embraces the coordinated efforts of the manufacturer’s departments, based on this intelligence, to create superior customer value related to upstream competitors (upstream inter-functional coordination).

This study focuses on the effects of the manufacturer on its upstream stakeholders. The conceptualization of market orientation developed from theoretical support for hypothesized relationships concerning the effects of manufacturer-perceived upstream market orientation on the various elements of its relationship with its suppliers.

3. CHANNEL RELATIONSHIPS

Kalwani and Narayandas (1995) report that manufacturers in relationships with selected suppliers and customers are able to retain or even improve their profitability levels more than manufacturers who employ a transactional approach. Lusch and Brown (1996) show that it is the customers’ and suppliers’ attitudes and perspectives toward those relationships that lead to positive outcomes. This article focuses on the factors of trust, cooperative norms, commitment and satisfaction in predicting the future links between manufacturers and suppliers in terms of their different relational bonds. It is assumed that these impacts cannot only be separately identified, but also interact with each other in shaping manufacturers’ perceptions of their relationships with suppliers.

4. CONCEPTUAL FRAMEWORK AND HYOTHESES

Much of the emerging research involving channel issues centers market orientation on the relationship of trust, cooperative norms, commitment, and satisfaction. (e.g. Baker et al., 1999; Langerak, 2001; Siguaw et al., 1998). The UMO of the manufacturer includes supplier orientation, competitor orientation and interfuctional orientation. This article seeks to investigate the upstream market orientation as perceived by the manufacturer and its effects on various channel relationship factors: trust, cooperative norms, commitment, and satisfaction. At the same time, it tries to determine if these relationships are reciprocal. The hypotheses underpinning the conceptual framework of this study are depicted in Figure 1.

[FIGURE 1 OMITTED]

Hypothesis 1: The manufacturer’s perception of upstream market orientation is positively related to the importance attached by the manufacturer to its perception of trust in its relations with the supplier.

Hypothesis 2: The manufacturer’s perception of upstream market orientation is positively related to the importance attached by the manufacturer to its perception of cooperative norms in its relations with the supplier.

Hypothesis 3: The manufacturer’s perception of upstream market orientation is positively related to the importance attached by the manufacturer to its perception of commitment to the supplier.

Hypothesis 4: The manufacturer’s perception of upstream market orientation is positively related to the importance attached by the manufacturer to its perception of satisfaction with the supplier.

Hypothesis 5: The greater the manufacturer’s perceived level of trust in the supplier, the greater its perception of cooperative norms in the relationship.

Hypothesis 6: The greater the manufacturer’s perceived level of cooperative norms in its relations with the supplier, the greater its perception of commitment to the relationship.

Hypothesis 7: The greater the manufacturer’s perceived level of commitment to the supplier, the greater its perception of satisfaction with the relationship.

5. MEASURE AND DATA COLLECTION

The responses were recorded on 7-point Likert scales unless mentioned otherwise. The manufacturer’s UMO was measured using 22 items pertaining to UMO, adapted from the work of Langerak (2001). The items used to measure trust (nine items), cooperative norms (six items), commitment (five items) and satisfaction (three items) were drawn from studies by various scholars (including Anderson et al., 1998; Baker et al., 1999; Geyskens et al., 1999; Kumar et al., 1992).

The sample consisted of manufacturers in Taiwan with more than 30 employees in the IT industry. Up to 31 December 2002, a total of 400 questionnaires were sent to manufacturers’ CEOs, general managers or purchasing managers. By early February 2003, the mailings had resulted in responses from 76 manufacturers, equivalent to an overall response rate of 19 per cent.

6. RESULTS

The reliability of each purified, unidimensional scale was explored by computing the reliability coefficient. This study also corroborated the reliability of the constructs through Cronbach’s alpha. All five constructs were shown to have reliability between 0.7 and 0.86.

Path analysis through the LISREL 8 program (Joreskog and Sorbom, 1993) was used to test the hypotheses represented in Figure 1. The analysis of the model resulted in a very good fit to the data (The Chi-square of the measurement model is 39.19 with 37 degrees of freedom (p = 0.37); the root mean square error of approximation (RESEA) is 0.028; and the comparative fit index (CFI) is 0.99. Table 1 presents the standardized path coefficients, the completely standard solution, and the t-values associated with the estimates. UMO has a significant effect on trust ([H.sub.1]: y = 1.15, p < 0.01), cooperative norms ([H.sub.2]=: y = 0.78, p < 0.05), and commitment ([H.sub.3]: y = 0.86, p<0.01), but has no direct effect on satisfaction ([H.sub.4]: y = 0.78). Trust is significantly related to cooperation norms ([H.sub.5]: y = 0.77, p < 0.01); however, cooperative norms do not affect commitment ([H.sub.6]: y = 0.56), and commitment does not affect satisfaction ([H.sub.7]: y = 0.17). In summary, the results provide support for [H.sub.1], [H.sub.2], [H.sub.3] and [H.sub.5], but not for [H.sub.4], [H.sub.6] and [H.sub.7].

7. DISCUSSION AND CONCLUSIONS

The findings indicate that a manufacturer’s UMO has significant effects on its channel relationships in terms of trust, cooperative norms and commitment with the supplier. As the result, suppliers should consider whether their customers (meaning manufacturers in this study) follow a high or low market-oriented UMO, because this determines whether their customers attach importance to trust, cooperative norms and commitment with them. Therefore, suppliers should keep an eye on their customers’ market-oriented UMO if they wish to maintain a good channel relationship with their customers. The findings also reveal that there are no direct effects of manufacturer-perceived UMO on the manufacturer’s perception of satisfaction with the supplier in the industrial relationship. But this may be because the relationship between UMO and satisfaction possibly delayed, since a change in UMO takes place slowly and costly. Hence, the costs can be spread over the long period of time, it is likely that satisfaction can be improved because an increased level of UMO should facilitate the use of the supplier’s knowledge and skills in the process of creating value for the manufacturer (Langerak, 2001; Greenley, 1995).

To understand the reciprocity among the various elements of the channel relationship, it can base on contribution of Anderson and Narus, (1990), and Siguaw et al. (1998), which suggests that the manufacturer’s perception of trust has a direct impact on its perception of cooperative norms. Recent study confirms that the manufacturer’s perception of trust is positively related to its perception of cooperative norms in the channel relationship with the supplier. Thus, the manufacturer supposes to attach importance to trust and cooperative norms with the supplier.

The lack of direct effect of the manufacturer’s perception of cooperative norms on commitment is incredible, since such an effect has been found in previous research (Morgan and Hunt, 1994). The dissimilarity between those findings might be attributable to the use of different measuring constructs. This study follows the approach of Siguaw et al. (1998) and Baker et al. (1999), who used a behavioral measure on commitment and a two-dimensional measure on trust (benevolence and credibility). On the other side, Morgan and Hunt’s commitment measure is more emphasized on nature. Their single dimension of trust, which focuses on reliability, integrity and confidence, is more akin to Siguaw et al. (1998) and Baker et al. (1999) credibility dimension. Second incredible finding is the lack of a direct effect of commitment on satisfaction in another research (Siguaw et al., 1998 and Langerak, 2001). Such lack may also be due to the use of different measuring constructs: this study adopts a non-economic concept of satisfaction that measures overall satisfaction and commitment. On the contrary, Siguaw et al. (1998) and Langerak (2001) adopt a two-dimensional measure that includes economic and non-economic satisfaction dimensions.

At last, this paper seeks to contribute to channel research on the effects of the manufacturer’s perceived UMO on relationships with the supplier in the industrial channel. At first, it focuses the UMO conception on channel research, and the study provides substantive support for previous findings and additional insights about supplier orientation, competitor orientation and inter-functional orientation. Secondly, and most importantly, this study provides clear evidence that UMO is an important, influential force and a significant impact on relationship variables. This study provides substantive evidence to support that UMO affects trust, cooperative norms, commitment and satisfaction. Finally, it sorts the evidence about the reciprocity among trust, cooperative norms, commitment and satisfaction in the channel relationship.

TABLE 1: LISREL ESTIMATES, T-VALUES, AND SUMMARY OF RESULTS

LISREL

Estimates Completely

Structural Path (Maximum std. t-value Hypothesis

Likelihood) solution

UMO [right arrow] TRUST 0.61 1.15 10.52 ** [H.sub.1]

UMO [right arrow]

COOPERATION 0.16 0.78 2.38 * [H.sub.2]

UMO [right arrow]

COMMITMENT 0.40 0.86 6.72 ** [H.sub.3]

UMO [right arrow]

SATISFACTION 0.23 0.78 1.70 [H.sub.4]

TRUST [right arrow]

COOPERATION 0.30 0.77 2.64 ** [H.sub.5]

COOPERATION [right

arrow] COMMITMENT 0.08 0.03 0.56 [H.sub.6]

COMMITMENT [right

arrow] SATISFACTION 0.05 0.08 0.17 [H.sub.7]

Chi-Square ([chi square])

with 37 degrees of freedom = 39.19 (p = 0.37)

[chi square]/df = 1.05

Goodness of Fit Index (GFI) = 0.91

Adjusted Goodness of Fit Index (AGFI) = 0.85

Root Mean Square Error of Approximation (RMSEA) = 0.028

Comparative Fit Index (CFI) = 0.99

** p < 0.01; * p < 0.05

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Author Profiles:

Dr. Ben-Jeng Wang earned his doctoral degree from graduate school of Industrial Engineering, Lamar University, Beaumont, TX, USA. Currently, he is teaching operations and information management courses in the Department of Business Administration, and also serves as chairman of Institute of Continuing Education both in Tunghai University, Taiwan, ROC.

Chen-Ching Wang earned his master degree from graduate school of Institute of Industrial Engineering and Management, National Taipei University of Technology, he is working in the Learning Center for Small and Medium Enterprise in Central Taiwan of Ministry of Economic Affairs, Taiwan, ROC.

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