Relational Governance Of The Distribution Channels

The point that relational contracts are of great importance to the organizing and running of channel relationships is much appreciated by marketing fields, both theoretically and practically. Researchers in this field attempt to find out why channel members would like to choose informal instruments such as relational contracts and trust rather than rely on those formal ones to cultivate and develop their relationships, and how these informal mechanisms work effectively and smoothly.As to these questions, marketing literature draws on economics such as Transaction Cost Analysis (TCA) to display its own answer. In this stream, focus is put on the three key dimensions of any transaction: asset specificity, uncertainty, and frequency, which put together, call for a distinct and specific form of governance to be match a certain transaction, under the fundamentals of the TCA. This theory reflects the conditions in channels such that the attributes of channel transactions could stand for independent variable, and governance structure of channel relationships for dependent variable; put in another way, the latter is the function of the former. Under this logic of economics, the structure of governance of transaction and the structure of transaction per se are strictly of isomorphism, and relational contracting in channel practice is deemed as the outcome of asset specificity. Furthermore, although the concept of relational contracting is draw from the Relational Contract Theory (RCT), this theoretical transplant does not reach the core of the issue, which results in the superficialness of the analysis of the relational governance of channel relationships.In the other stream, marketing literature shows its interest in relational norms, and tries reinterpreting the relational governance of channel relationships from the perspective of sociology, rather than economics. However, opinions varying in this stream give birth to controversy among researchers and criticism from others as well.Is there any common conception between these two streams? A positive answer to this question is posted in this paper, which build up its own analytical framework on the critical construct of"embeddedness". On the one hand, under the logics of economics, transactions between channel members is isolated from social relationships, which is criticized to be an opinion of under-socialization; on the other hand, under the logics of sociology, the proposition that"transactions between channel members is embedded in social relationships"is not only too over-socialized but too extensive to predict the specific problem in distribution channel.This paper attempts to accommodate these two different and even conflicting opinions. Drawing on economics (especially the TCA) and sociology (especially the New Economic Sociology, NES), we set up a comprehensive analytical model, based on the notion of"embeddedness", centering on the conception of"relational contract(s)", extending in two ways– structural dimension (outward embeddedness and inward embeddedness) and process dimension (forward embeddedness and backward embeddedness), and displayed on two each levels– organizational and personal. Under this model, the core of this paper containing seven chapters (Chapter 2 - 8, which can be implicitly classified into five parts) elaborating the theme of"relational governance of channel relationships"as follows:Chapter Two introduces the"target"of this paper, distribution channel relationships. We draw conclusions that, firstly, channel relationships embody in two forms– transactional channel relationship and relational channel relationship, and secondly, channel relationships have some important features (long-term orientation, flexibility combined with stability, and collective interest orientation, etc.) which resembles the basic features of relational contracts, relational norms, and trust as well, and thirdly, channel relationships develop in their structural dimension and process dimension.Chapter Three explains the general concepts of"relational governance"and"self-enforcing"from the perspective of economics (TCA), and shows how the hostage model, reputation model and relational contract incentive model operates under the specific condition of channel relationships. In the last subsection of this chapter, we appraise the positive and negative effects of TCA on the study of relational governance of channel relationships. In this chapter, we will find these points: firstly, self-enforcing of the relational contracts is the essence of relational governance of channel relationships; secondly, this stream of analyzing is based on the economic rationalism, which is defective for its being"under-socialized"– analysis being partial due to its ignorance of social relational factors, study being superficial due to its choosing"transaction"instead of"relationship"as the basic analytical unit, and so on. These defects lead to gaps between practice and theory; and to make up these gaps, we could turn to the embededness analysis.Chapter Four and Chapter Five expatiate on the issue of relational governance in channels from the perspective of embeddedness. Chapter Four introduces the notion of relational governance in general, basing the whole analytical framework of this part on some concepts such as network embeddedness, temporal embeddedness, and iterative embeddedness. Chapter Five analyzes the conception of relational governance specific in the filed of channel relationships and demonstrates that the process and structure of channel relationships development is actually a dynamic and balanced cycle.In this essential part, we get some crucial findings: first of all, the analytical framework based itself on the basic genetic conception of"relationships", which will prove that transaction structure and the governance structure are in essence of no isomorphism, thus, the relational governance of channel relationships develops in two dimensions– the dimension of structure and process, and on two levels– the organizational and personal level. On the organizational level, the embeddedness is mainly set by persons acting as a"role"–"role relationships"and"personal relationships"are iteratively embedded in each other (which could be labeled as"embedded"vs."counter-embedded"). Second, relational governance refers to the governance under embedded relational contracts through relational norms. It is not the contracts but the social relationships in which the contracts are embedded that determine the effectiveness of the contracts. Following this view, relational norms are the essential elements of relational contracts. It is the self-enforcing of relational norms that determine the self-enforcing of relational contracts. Third, the mechanism of relational norms operates in such way: the endogenesis of relational norms and the internalization of exogenesis relational norms make them specified, which helps the relational contracts turn to be"normative contracts"on the organizational level and "psychological contracts"on the personal level. These particular types of relational contracts interact with formal (legal) contracts through the processes of institutionalization and formalization and eventually arrive at the state of"dynamic cycle". Respectively, on the organizational level, the construct of"formalization"could measure the conditions of the relationships between normative contracts and formal contracts; the construct of"institutionalization"could measure the performance of the relational governance on the personal level. As to the former situation, at the outset stage of the channel relationships, the degree of formalization is relatively high, and the relational norms have less effect on the relational governance; however, once the channel relationships were set up and kept growing, the degree of formalization decreases, for the effect from relational norms increases and formal contracts turn out to be the mirror of normative contracts. As to the personal situation, institutionalization is actually a process of socialization, which changes the instrumental transactions into social relationships, through the way of importing norms and values to transactions, for norms and values could make the relationships between creators transcend the limitation of personal conditions (e.g. tenure). Once the channel relationships were institutionalized, three outcomes would show up: First, personal relationships between the employees of channel members would compensate formal role relationships little by little; Second, psychological contracts would replace the role of legal contracts gradually; Third, the channel relationships would survive the tenure of specific personal members or agents who have built up the relationships. Synthetically, the formalization on the organizational level is the counterpart of the institutionalization on the personal level, both of which reflect the structural transformation through the process dimension– the only difference between them is the direction of embeddedness.Chapter Six and Chapter Seven focus on the issue of trust in the relational governance of channel relationships. Chapter Six introduces the general concept of trust, and provides an embedded model for analyzing trust; Chapter Seven elaborates the particular issue concerning trust in the governance of channel relationships, through employing the embeddedness analysis model. Generally speaking, the foregoing part concerning relational norms is analyzing the relational governance itself, for the norms are the intrinsic contents and rules of relational contracts, while this part on trust is trying to explain the issue of relational governance away from the channel relationship itself. In this part, we draw conclusions as follow: First, the relationships between trust and relational contract (as well as relational norms): from the perspective of relational endogenesis, in the process of governance through endogenesis relational norms, trust emerges as the outcome of relational contracts, and trust of this type is calculative, half-strong, and situation-specific in nature, and trust is just the character of this particular channel relationship; Meanwhile, from the perspective of relational exogenesis, in the process of governance through internalized exogenesis relational norms, trust is the essential content (rather than the character) of this particular channel relationship, and in this situation, trust is non-calculative, strong, and individual-specific in nature. Synthetically and comprehensively, relational contracts (and relational norms) and trust are accommodative and promoting to each other in an endogenesis and exogenesis way, structurally and procedurally, which demonstrates the pluralism and dynamism of relational contracts and trust in the relational governance of channel relationships. Second, under the logic of economics, trust is endogenesis in nature, and it is the product or by product of calculative designs. Now that trust is to be designed or constructed by rational agents, it also stands that trust could be replaced by other mechanism of higher efficiency, such as legal contacts. No wonder that TCA devaluate implicitly the importance of trust in transactions. On the contrary, embeddedness analysis looks at trust in either exogenesis way or endogenesis way, and believes that exogenesis trust is inherently the trustworthiness of a certain agent, which could explain the essence and the function of trust in channel relationship better and more actually.Chapter Eight is the last part of the core of this paper. We apply the agent-based economics to simulating the relational governance mechanism and the function of trust in the process and structure of the governance, so as to provide demonstration for the foregoing analysis.Generally speaking, the central opinions of this paper are following: Firstly, relational governance refers to the governance under embedded relational contracts through relational norms. According to the logic of economics (such as TCA), the governance of channel relationships is self-enforcing of relational contracts in nature, while the embeddedness analysis points out that relational norms are the essential elements of relational contracts; It is the self-enforcing of relational norms that determine the self-enforcing of relational contracts , therefore, relational governance refers to the governance under embedded relational contracts through relational norms.The primary innovations of this dissertation are summarized in the following: In methodology, we make some try in the following way. First, we investigate the conception of"embeddedness"in a deeper way, which makes the notion of"embeddedness"more operationalized, so as to smoothized analyzing of the issue of relational contracts and trust in the relational governance of channel relationships; Secondly, we attempt to explain the relational governance of channel relationships in two dimensions– structural dimension and process dimension, from a perspective (i.e. an embeddedness analytical framework) different from the earlier research.Thirdly, this paper distinguishes instrumental attributes (economic attributes) from relational attributes (social attributes) so as to make the notion of"relational governance"more operationalized.Fourthly, the dichotomy perspective of"endogenesis vs. exogenesis"pushes this study further in methodology, which, visibly different from some popular analytical mode, facilitates our analysis of relational norms and trust in relational governance in an integrated way.In epistemology, this paper contends that relational norms is the essential contents of relational contracts (either in an exogenesis way or endogenesis way), therefore, relational governance refers to the governance under embedded relational contracts through relational norms. Within the structure and during the process of the relational governance of channel relationships, trust either stems from or reflects relational contracts (and relational norms in particular), either in an exogenesis way or endogenesis way, just like the relational norms.