Title: Adaptation problems in business relationships with substantial asset specificity and environmental uncertainty: the moderating effect of relationship duration

Authors: Arnt Buvik; Otto Andersen

Addresses: Department of Economics, Molde University College, Service Box 2110, 6402 Molde, Norway ' Institute of Economics, Agder University, Kristiansand, Service Box 422, 4604 Kristiansand, Norway

Abstract: Based on transaction costs analysis (TCA) and relational contract theory (RCT), this study examines the association between asset specificity, environmental uncertainty, relationship duration and inter-firm governance in business-to-business relationships. In particular, the authors elaborate the tension between the problem of safeguarding and adaptation in business-to-business relationships by comparing the interaction effect of specific investments and environmental uncertainty on inter-firm coordination across business-to-business relationships with different prior length. Data from a survey of 170 industrial buyer-seller relationships demonstrates that when buyer-seller relationships with substantial asset specificity and short prior history are exposed to substantial environmental uncertainty, inter-firm coordination arrangements are quite modest. This governance pattern is completely different in business-to-business relationships with long prior history where the combined presence of substantial assets specificity and high environmental uncertainty enforces the level of inter-firm coordination. These findings demonstrate that relational norms and trust enforces the ability to implement hybrid governance arrangement when strong inter-firm ties and substantial environmental volatility appear simultaneously.

Keywords: business-to-business; B2B relationships; relational contracting theory; RCT; transaction costs analysis; TCA; environmental uncertainty; trading hazards; survey data; regression analysis; adaptation; relationship duration; asset specificity; inter-firm governance; inter-firm coordination; buyer-seller relationships.

DOI: 10.1504/IJPM.2016.075265

International Journal of Procurement Management, 2016 Vol.9 No.2, pp.206 - 222

Received: 11 Nov 2014
Accepted: 31 Jan 2015
Published online: 09 Mar 2016 *

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