Constrained choice in supply chain relationships: the effects of regulatory institutions

AuthorDonna F. Davis, Beth Davis-Sramek, Susan L. Golicic, Teresa M. McCarthy-Byrne
DOIhttps://doi.org/10.1108/IJLM-01-2019-0030
Pages1101-1123
Publication Date11 Nov 2019
Constrained choice in supply
chain relationships: the effects of
regulatory institutions
Donna F. Davis
Department of Marketing, University of South Florida, Sarasota, Florida, USA
Beth Davis-Sramek
Department of Systems and Technology, College of Business,
Auburn University, Auburn, Alabama, USA
Susan L. Golicic
Colorado State University, Fort Collins, Colorado, USA, and
Teresa M. McCarthy-Byrne
Department of Global Supply Chain Management,
Bryant University, Smithfield, Rhode Island, USA
Abstract
Purpose Utilizing a top-down approach of middle-range theorizing (MRT), the purpose of this paper is to
integrate relational exchange with institutional theory to examine how companies manage supply chain
relationships to achieve desired supply chain outcomes in industries characterized by varying degrees of
regulatory mandates that restrict the choice of supply chain partners. The authors identify this supply chain
relationship dynamic as constrained choice.
Design/methodology/approach A moderated mediation model is tested using survey data from
producers in the US wine industry to investigate the effects of regulatory pressure on the ability of wine
producers to achieve operational coordination when responding to relational behaviors through either trust or
calculative commitment.
Findings Results find that relational behaviors can improve operational coordination through two distinct
paths: trust or calculative commitment. With the moderating effect of regulatory pressure, relational
behaviors more effectively facilitate operational coordination through trust. Alternately, regulatory pressure
attenuates the mediated relationship through calculative commitment.
Research limitations/implications The research introduces constrained choice dynamics into the
supply chain relationship literature via MRT. Integrating generative mechanisms from relational exchange
and institutional theories provides theoretical depth and context-specific knowledge about relationships that
operate in constrained choice situations.
Practical implications Managers impacted by constrained choice should recognize that mechanisms
typically resulting in positive relationship outcomes may respond differently in the presence of regulatory
constraints. With greater regulatory pressure, efforts to enhance operational coordination are more effective
using relational mechanisms to build trust. When trust is diminished, calculative commitment can be effective
in achieving operational coordination, although extensive regulations make it more difficult.
Originality/value Previous research traditionally assumes that managers are free to select suitable
trading partners that ensure mutually beneficial relationships. The research develops a middle-range theory
examining the constrained choice dynamic in relationships that are impacted to varying degrees by
regulatory institutions.
Keywords Supply chain relationships, Constrained choice, Moderated mediation modelling,
Middle range theory, Institutional theory, Relational exchange, Regulatory pressure
Paper type Research paper
Introduction
Many industries are characterized by strict regulatory compliance requirements that carry
with them significant supply chain implications. For instance, the Food and Drug
Administration has a rigorous validation process for medical device manufacturers.
The International Journal of
Logistics Management
Vol. 30 No. 4, 2019
pp. 1101-1123
© Emerald PublishingLimited
0957-4093
DOI 10.1108/IJLM-01-2019-0030
Received 25 January 2019
Revised 2 June 2019
Accepted 11 July 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0957-4093.htm
1101
The effects of
regulatory
institutions
The time-consuming and expensive process is required for product approval and then again
when changes are made to the product or process. As such, changes cannot be implemented
without going through a long and intense formal approval process, making the ability to
switch suppliers very difficult (Ortiz et al., 2011). Other global industries, such as banking
and finance, pharma, medicine, tobacco, alcohol, firearms and defense all have supply chain
relationship constraints that stem from mandates created and enforced by regulatory
institutions (Grewal and Dharwadkar, 2002). We term this supply chain management and
logistics (SCML) phenomenon as constrained choice,reflecting a specific relationship
dynamic that can occur in highly regulated supply chains.
In a broad review of the SCML relationship research, we found a disconnect in the
literature. The research generally assumes, at least implicitly, that firms are free to establish
mutually beneficial relationships built on relational governance mechanisms (Lambert et al.,
1996). This overlooks industries and contexts in which firms are hampered in choosing
supply chain partners. This constraining dynamic from regulatory institutions can force
firms to maintain relationships that may not be conducive to effective relational governance,
thereby diminishing performance (Grewal and Dharwadkar, 2002; Bello et al., 2004;
Yaibuathet et al., 2008). Research has not addressed how these specific supply chain
relationships can be managed in order to achieve desired performance outcomes. Research
is also scant on how the nature of these relationships changes with varying degrees of
pressure emanating from regulatory institutions. Therefore, a critical step in the maturation
of the discipline is to develop more theoretical specificity about supply chain relationships
that are embedded in and influenced by regulatory institutions, which is a dimension of a
firms broader institutional context ( Jarzabkowski, 2008).
Another industry representative of constrained choice is the US alcoholic beverage
industry. It is one of the most highly regulated in the USA, with a rich history of regulatory
action. Federal,state, and local laws constrain the sale of alcohol and create additionalsupply
chain complexity. Distribution within the USA is particularly affected because of the three-
tier system.A vestige of the repeal of prohibition and ratification of the Twenty-First
Amendment in 1933, this system prevents vertical ownership of production,distribution and
retail. It also grants individual USstates broad authority to regulatethe sale and distribution
of alcohol (Miller,2017). Businesses selling alcoholin the USA must adhere to each statesown
unique system of controlthrough extensive state (and sometimes municipal) regulations. For
producers in particular, the three-tiersystem creates constraining distribution mandates that,
to varying degrees, limit their choice of downstream supply chain customers.
Using the US wine industry as the backdrop to examine constrained choice relationship
dynamics, we ask the broad question, how do companies manage supply chain relationships
to achieve desired supply chain outcomes in industries characterized by varying degrees of
regulatory mandates that restrict the choice of supply chain partners? The nature of this
research lends itself to the top-down approach of middle-range theorizing (MRT) (Craighead
et al., 2016; Calantone et al., 2017; Stank et al., 2017; Davis-Sramek et al., 2019). We take a
pluralistic approach to contrast and integrate the grand theoriesof relational exchange to
examine the relationship dynamics (e.g. Macneil, 1980; Kaufmann and Dant, 1992; Morgan
and Hunt, 1994; Palmatier et al., 2007) and institutional theory to examine the influence of
regulatory pressure (e.g. DiMaggio and Powell, 1983; Grewal and Dharwadkar, 2002; Hofer
et al., 2011). Taking this MRT approach, we follow the prescriptive guidance offered by
Calantone et al. (2017) to test a complex moderated mediation chain leading to practical and
relevant insights about the nature of supply chain relationships with constrained choices
due to regulatory institutions (Schoenherr et al., 2014).
The research focuses specifically on how relational mechanisms (i.e. relational norms,
communication and opportunistic behavior by the custom er) facilitate operational
coordination through either trust or calculative commitment. In effect, we posit that wine
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