Strategic interdependence, governance effectiveness and supplier performance: A dyadic case study investigation and theory development

Inter-organizational exchange governance approaches are often characterized as two broad types: relational and transactional. However, in fast changing business contexts, the contextual contingencies do not present ideal conditions for practicing purely relational or transactional approach. Understanding the dynamic of key contextual factors and their effects on a firm's resource capabilities and inter-organizational power structure is crucial for identifying the appropriate governance structure over time. In this paper we explore the exchanges between an OEM and five of its strategic suppliers that operate in high-end, short product life cycle motorbike industry, to understand the key contextual factors and the relationships among business context, governance structure, and exchange practices in a dyadic context. It is observed that firms deviate from the conventional choices of either transactional or relational governance to a combination of contractual and relational aspects to make the governance structure effective. Based on case studies, a theoretical framework is proposed to explain the rationale, feasibility and effectiveness of combining contractual and relational aspects in different contexts. The framework suggests that the degree of strategic interdependence between the trading partners fundamentally drives the effectiveness of governance structure and exchange practices.