The Mediation Effects of Buyer-Supplier Integration on the Relationship between Supplier-Specific Investments and Supplier-Opportunism

Abstract

This research concerns opportunism in a buyer-supplier relationship. Based on transaction cost and relational contracting theories, it examines the mediation effects of the buyer-supplier integration on the relationship between supplier specific investment and opportunism. Mediation effects were estimated using structural equation modelling based on a survey of 111 key informants in the public health facilities in Tanzania. The unit of analysis is the exchange relationship between the Medical Supplies Department (MSD) and the public health facility. The analysis revealed that the buyer-supplier integration negatively mediates the effects of supplier-specific investments on opportunism. In this research, external validity is limited due to a highly regulated environment; as such, more studies should be conducted in different contexts, e.g. culture. The findings from this study have both managerial and theoretical implications. First, purchasing managers should exert more efforts in developing closer relationship with the supplier to mitigate opportunistic behaviours. Second, the government should consider enforcing MSD to make specific investments not only as a means for solving moral hazard problems but also as a means for encouraging and enforcing the development of close co-ordination between the actors. Theoretically, this paper has contributed to the transaction cost theory by indicating that specific investments may not always stand as direct control mechanisms towards opportunism; instead, they can also lead to the development of other relational mechanisms which are effective in mitigating opportunistic behaviours.