THE IMPACT OF CULTURAL DIFFERENCES ON BUYER-SUPPLIER RELATIONSHIPS.

Abstract

In today's economy, an ever-increasing number of companies are dealing with partners from across the world giving rise to the need to understand the impact of cultural differences on business interactions. This dissertation uses two different approaches to investigate the impact of culture in buyer supplier relationships. The first study researches the effect of cultural differences in contractual buyer-supplier agreements using transaction cost as a theoretic lens. A large number of relationships translate into contracts between partners, but very few studies have investigated the effect of cultural differences on these written agreements: This research looks at the level of contract completeness and the option to renegotiate the contract as outcome variables. The study investigates the impact of cultural difference in buyer-supplier relationships using Hofstede's cultural dimensions. The main finding is that contract completeness increases as the cultural gap between the buyer and supplier widens. The results for individual culture dimensions on contract completeness are mixed. Cultural distance impacts the option of renegotiation but the individual dimensions fail to have an effect. Finally, asset specificity has the expected positive effect on the level of contract completeness and the option to renegotiate, while more frequent transactions result in lower levels of contract completeness and fewer options to renegotiate. Overall, these findings emphasize that cultural background is a factor in contractual buyer supplier relationships and need to be taken into account in global supply chain management. The second essay investigates the impact of cultural differences in the context of dyadic buyer-supplier negotiations. It looks at the moderating effect of culture. The study uses an experimental design to investigate these issues. In the simulation negotiation, participants, classified by their country of origin, are asked to take on the role of either a buyer or a seller. They negotiate prices and quality levels for three products. This study finds that cultural differences within the negotiation dyad reduce joint profits when compared to dyads of participants with similar cultural backgrounds. Cultural differences weaken the effect of trust and opportunism on joint profits. Overall, this study concludes that cultural differences as encountered in day-to-day business interactions in global supply chains impose greater challenges.