Organization of vertical relationships

Vanneste, Bart (2009) Organization of vertical relationships. Doctoral thesis, University of London: London Business School.

Abstract

In this dissertation I address the question of how vertical relationships, i.e. relation- ships between subsequent stages of a supply chain, are different within than between firms. While prior research has explored extensively the choice between organizing within versus between firms, we know little about how these alternatives are different. In this dissertation I use three settings in which I directly and simultaneously observe elements of vertical relationships both within and between firms. In the first study, I use interview data from respondents in eight multi-business unit companies on similar internal and external vertical relationships. I find that cooperation is often higher between than within firms, because it is harder to fire internal than external units. I provide a formal model through which I show the generalizability of my findings and generate some empirical predictions. In the second study, I use survey data on internal and external supplier relationships in the US automobile industry. I study how stronger incentives between than within firms influence the attribution of trustworthiness to exchange partners. Because co-operation may arise from trustworthiness or incentives, the presence of strong incentives hampers the attribution of trustworthiness and development of trust. In line with this argument, I find that trust between exchange partners increases more with relationship duration and employee co-location under vertical integration than non-integration. In the third study, my empirical setting is a Dutch production facility of a company active in the raw materials industry. I compare their written agreements for maintenance services with internal and external suppliers. Controlling for transaction and market characteristics. I find that external agreements contain more incentive clauses and that they have a similar number of pages for describing the (coordination of the) service.