How does suppliers asset specicity affect product development performance?

A relational exchange perspective

Yu-Xiang Yen and Shiu-Wan Hung
Department of Business Administration, National Central University, Jung-Li City, Taiwan
Abstract Purpose Although previous studies have examined the inuence of asset specicity on rm performance, the literature has not focused on the inuence of supplier asset specicity on product development, or the transformation that induces this. This study aims to propose a model by using the relational exchange perspective to explain the mechanism in which supplier investment in specic assets on behalf of buyers inuences buyer performance in product development. Design/methodology/approach Empirical data were collected from research and development staff in Taiwanese listed electronic rms and tested using structural equation modeling to verify the t of the hypothetical model. Findings The result demonstrates that supplier investment in specic assets for buyers positively impacts buyers perceived relationship quality, which in turn affects knowledge sharing between buyers and suppliers and buyer product development performance. However, asset specicity does not directly affect knowledge sharing. Originality/value This study illuminates the contribution of asset specicity to knowledge sharing and product development performance, by clarifying the mediation effects resulting from relationship quality and knowledge sharing. Keywords Asset specicity, Relationship quality, Knowledge sharing, Product development, Buyer-supplier, Knowledge management, Buyer-seller relationships, Electronics industry Paper type Research paper

An executive summary for managers and executive readers can be found at the end of this article.

1. Introduction
New product development is the core activity in rm innovation, and is essential to rm growth and competitive advantage in the highly competitive market. To improve product development performance, introduction of external resources, particularly from suppliers, has become crucial to product development. Suppliers thus are crucial to successful buyer product or service development. New product development is frequently cited as an example of a knowledge intensive activity (Iansiti and MacCormack, 1997). Since product development is a knowledge intensive activity, knowledge sharing between buyers and suppliers in product development is critical to buyer product development performance. Supplier behavior explains the willingness of buyers and suppliers to share knowledge with each other. Extant research posits that the supplier willingness to invest in specic assets for buyers signicantly inuences buyer-supplier knowledge sharing. However, it fails to explain how supplier asset specicity inuences knowledge sharing in industrial contexts.
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The argument that asset specicity directly causes knowledge sharing is unconvincing and deserves further discussion. The relationship quality framework comprising satisfaction and trust offers a promising perspective for clarifying knowledge sharing in supply chain relationships. Based on relational exchange theory, this study proposes that supplier investment in specic assets for buyers can improve buyer perceived relationship quality, making buyers feel relieved and willing to share knowledge with suppliers. Consequently, the rst research goal and contribution of this study is to clarify the mechanism by which asset specicity leads to knowledge sharing. Supplier specic asset investment for customers is generally esteemed to improve customer business and operation performance in practice. However, extant researches rarely discussed how asset specicity inuences the product development performance, and this question is the research focus of this study. Suppliers may invest in tangible or intangible assets for buyers. Besides direct aid provided in the form of physical asset investment, intangible and human assets can also favor product development. Nevertheless, intangible assets require transformation to realize their contribution to product development activities. This study thus rst argues that relationship quality and knowledge sharing are critical for transforming supplier asset specicity to enhance buyer product development performance, and the
Received: 18 April 2011 Revised: 25 May 2011 15 January 2012 Accepted: 1 March 2012

Journal of Business & Industrial Marketing 28/4 (2013) 276 287 q Emerald Group Publishing Limited [ISSN 0885-8624] [DOI 10.1108/08858621311313884]

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How does suppliers asset specicity affect product development? Yu-Xiang Yen and Shiu-Wan Hung

Journal of Business & Industrial Marketing Volume 28 Number 4 2013 276 287

gap in the inuence mechanism research shapes the second goal and contribution of this study. The remainder of this paper is organized as follows. The following section reviews the relevant literature and proposes hypotheses related to the inuence of asset specicity on knowledge sharing and product development performance based on the theories of social exchange and relational exchange. Second, this paper discusses the research methodology and analyzes the statistical data. Finally, this paper concludes by reviewing managerial implications, research limitations, and future research directions.

outside of a particular relationship. Asset specicity is related to the degree of transferability of the assets that support a given transaction (Williamson, 1985; Young-Ybarra and Wiersema, 1999). Transaction-specic investments thus create obstacles to leaving a relationship and provide incentives to building long-term relationships (Anderson and Weitz, 1992).

2. Literature review and hypotheses development

Transaction cost economics asserts that the specic assets invested in a partnership increase opportunism hazards and hence transaction costs (Heide and Stump, 1995). Based on the level of asset specicity, rms select an appropriate governance structure by which the partnership can reduce opportunism hazards (David and Han, 2004; Ghosh and John, 2005). Although transaction cost economics advocates structural governance to alleviate misappropriation hazards in alliances (Sampson, 2004), it neglects trust enhancement through repeated alliances. However, social exchange theory and relational exchange theory stress the importance of building interrm trust (Bignoux, 2006; Das and Teng, 2002; Lui et al., 2009) and the trust building process in exchange relationships (Muthusamy et al., 2007). Homans (1961) rst proposed social exchange theory, which utilizes the disciplines of behavioral psychology and elementary economics. Blau (1964) considered social exchange as individual voluntary actions motivated by expected returns from others. Besides interpersonal exchanges, social exchange theory also examines relational exchanges in business-to-business contexts (Whitener et al., 1998). Other researchers adopted relational exchange theory to study the relationship between two parties. This theory proposes a relation-specic asset for capturing the long-term investment in the people, assets, and procedures involved in a partnership (Anderson and Weitz, 1992; Ganesan, 1994; Morgan and Hunt, 1994). Relational exchange relationships can be characterized by shared norms such as solidarity, exibility, and information exchange (Heide and John, 1995). Lui et al. (2009) supported the predictions of relational exchange theory, which focuses on cooperative behavior generated by asset specicity, more than those of transaction cost economics. The extant research based on relational exchange theory suggests that asset specicity enhances trust between partners, in turn promoting cooperative behavior and higher partnership performance. According to the above discussions, adopting social exchange theory and relational exchange theory offers the best means of building the research theories and framework of this study. 2.1 Asset specicity Williamson (1989, 1991) dened asset specicity as the degree to which an asset can be redeployed to alternative uses by alternative users without sacricing productive value. Asset specicity refers to durable investments in physical or human assets that are dedicated to particular transactions and entail considerable switching costs or lose value if these assets are redeployed for any other purpose (Heide, 1994; Williamson, 1985). Meanwhile, Lohtia et al. (1994) described asset specicity as a tangible or intangible asset with little value 277

2.2 Relationship quality Relationship quality is vital in the determination of customers to develop and maintain long-term relationships with particular suppliers (Walter et al., 2003). Relationship quality is also understood as the suitability of a relationship to fulll related customer needs (Hennig-Thurau and Klee, 1997). Johnson (1999) suggested that relationship quality represent the overall depth and climate of a relationship. Finally, De Wulf et al. (2001) dened relationship quality as an overall assessment of the quality of a relationship. The concept of relationship quality can be stated as a and Buttle, 2000), multidimensional construct (Naude reecting the overall nature of relationships between companies and consumers (Hennig-Thurau, 2000; HennigThurau et al., 2002). Research frequently proposes trust and satisfaction as dimensions of the relationship quality construct (Bejou et al., 1996; Lin and Ding, 2005; Skarmeas and Robson, 2008). Commitment is also added as one dimension of relationship quality (De Wulf et al., 2001, Hennig-Thurau, 2000; Hewett et al., 2006; Macintosh, 2007; Moliner et al., 2007; Ozdemir and Hewett, 2010), and the relationship quality construct can encompass the dimensions of satisfaction, trust, ` re et al., 2010; and commitment (Barry et al., 2008; De Cannie Garbarino and Johnson, 1999; Ivens, 2004; Qin et al., 2009; Vesel and Zabkar, 2010; Wang et al., 2006). However, satisfaction and trust are the most prevalent and accepted dimensions. This study thus uses satisfaction and trust to conceptualize the construct of relationship quality. Satisfaction is important to relationship continuity (Anderson and Sullivan, 1993; Bolton, 1998), and is an important aspect of buyer-seller relationships (De Wulf et al., 2001). Some researchers dene satisfaction as customer affective state resulting from their overall appraisal of a service experience (Anderson et al., 1994; Oliver, 1997; Verhoef et al., 2002). Meanwhile, other researchers consider satisfaction to be the overall evaluation of the total purchase and consumption experience associated with a good or service (Anderson et al., 1994; Zeithaml et al., 1996). Verhoef et al. (2001) related commitment, satisfaction, and trust to consumer referrals and number of services purchased. Finally, Homburg et al. (2005) examined the impact of satisfaction on willingness to pay. Trust is the belief that the seller will honor their word (Anderson and Narus, 1990) and fulll promised role obligations (Scheer and Stern, 1992). Wilson (1995) noted that partner actions dene the level of trust that shapes the future of the relationship. Regarding trust as a relationship quality dimension, Smith and Barclay (1997) reported that trust positively affected behavioral outcomes such as forbearance from opportunism. Trust is dened as condence in the reliability and integrity of an exchange partner (De Wulf et al., 2001; Morgan and Hunt, 1994; Palmatier et al., 2006).

How does suppliers asset specicity affect product development? Yu-Xiang Yen and Shiu-Wan Hung

Journal of Business & Industrial Marketing Volume 28 Number 4 2013 276 287

2.3 Asset specicity and relationship quality Customer demands are more likely to be fullled when a supplier is willing to invest in specic assets for customers. Customers then have higher satisfaction or lower dissatisfaction with that supplier. Weiss and Anderson (1992) argued that partner asset specicity reduces dissatisfaction with partnerships. Lui and Ngo (2005) found asset specicity to be positively related to partnership satisfaction. Meanwhile, Skarmeas et al. (2008) examined the relationship between exporter and importer, and demonstrated that exporters specic investments can increase importer satisfaction with the overall international exchange relationship. Based on the above discussion, this study proposes the following hypothesis: H1. Supplier asset specicity positively inuences buyer satisfaction.

supply chain thus has become a common practice for enhancing supply chain competitive advantage (Cheng et al., 2008). 2.5 Asset specicity and knowledge sharing The use of knowledge-sharing routines is not free of costs and risks because supporting the transfer may require considerable time and resources (Dyer and Nobeoka, 2000). These investments are relationship specic and create a lock-in and vulnerable condition because the teaching rm cannot leave the relationship with the student rm without incurring economic losses (Wathne and Heide, 2000). High asset specicity displays intention and commitment to cooperate with partners (Skarmeas et al., 2002). Investment in relation-specic asset increases the cooperative behavior and transaction value of the partnership (Dyer, 1997; Dyer and Singh, 1998), and creates a nurturing platform to boost knowledge sharing (Grant, 1996a). Claro et al. (2006) found a positive direct relationship between investment in specic assets and the amount of joint effort invested in a relationship, which allows the rm to learn important insider information and become acquainted with rm products and applications that match buyer needs. Luo et al. (2009) proposed that knowledge sharing mediates the contribution of relationship-specic investment to success in ndezbuyer-supplier partnerships. Furthermore, Herna Espallardo et al. (2010) found that customer investments in knowledge-sharing routines in supply chains increase with supplier investments in relationship specic assets. Based on the above argument, this study proposes the following hypothesis: H3. Supplier asset specicity positively inuences knowledge sharing between buyer and supplier.

An asset-specic investment is a strategic tool for bonding partners together. Partners with long-term bonds are expected to behave in a trustworthy manner (Ganesan, 1994; Lui et al., 2006). Ganesan (1994) studied retail buyers and vendors, and endorsed the relationship between asset specicity and trust. His ndings demonstrate that specic vendor investment in people, lasting assets, and procedures increases retailer perceptions of vendor trustworthiness. Kwon and Suh (2005) showed that the specic asset investments of both parties strongly inuence rm trust in supply chain partners. Likewise, Yu et al. (2006) identied a positive relationship between transaction-specic investments and trust. Lui et al. (2009) also found that asset specicity relates positively to trust in a procurement relationship. Specic asset can be invested in the form of customization for buyers. Yen et al. (2011) showed that perceived supplier willingness to customize for a buyer has a positive inuence on the buyers perceived trust toward the supplier. Based on the above studies, this study proposes the following hypothesis: H2. Supplier asset specicity positively inuences buyer trust.

Skarmeas and Robson (2008) proposed that the level of asset specicity is positively related to the level of relationship quality. Based on hypotheses H1 and H2, this study thus proposes that supplier asset specicity positively inuences buyer perceived relationship quality. 2.4 Knowledge sharing Essentially, knowledge sharing enhances the ability of manufacturers to learn from their local partners (Nonaka, 1994), which ultimately leads to improving their competitiveness in the local market. Inter-rm knowledge-sharing routines are dened as regular patterns of business-to-business interactions in the supply chain that permit the transfer, recombination, or creation of specialized knowledge (Dyer and Singh, 1998). Wu et al. (2007) dened knowledge sharing as the joint exchange of information and know-how between international channel partners. Bilateral information exchange provides a safeguard for manufacturers and distributors in that each can expect the other to provide information useful to their operations (Zhang et al., 2003). Knowledge sharing is necessary within supply chains because knowledge may be an important source of coordination, and thus can be critical to creating value (Hult et al., 2004). Interorganizational knowledge sharing within a 278

2.6 Relationship quality and knowledge sharing Satisfaction is critical to buyer-supplier relationships, and is a key reason for buyers to continue such relationship and engage in business with suppliers. Satised buyers typically wish to continue trading with current suppliers, enabling further cooperation between the two sides. Inter-rm knowledge sharing is based on close cooperation among the parties involved, and investment in the process generally requires both money and resources. Therefore, satised buyers are more willing to share knowledge with suppliers. Ma and Agarwal (2007) proposed that the satisfaction of community members with their community is positively related to their knowledge contribution to that community. Accordingly, this study proposes the following hypothesis: H4. Buyer satisfaction positively inuences knowledge sharing between buyer and supplier.

Social enforcement relying on trust relations or reputation (Dyer and Singh, 1998) favors investment in knowledgesharing by reducing the likelihood of opportunistic behavior (Wathne and Heide, 2000). Trust acts as an ongoing social control mechanism, reduces risk, and fosters the amount of knowledge exchanged (Cheng et al., 2008). Numerous studies indicate that trust is a precursor to knowledge sharing (Kim and Mauborgne, 1997, 1998) and positively affects knowledge sharing between teams and team members (Connelly and Kelloway, 2003; Akgun et al., 2005; Arthur and Kim, 2005; Chowdhury, 2005; Muthusamy and White, 2005; Staples and Webster, 2008). Studies in professional

How does suppliers asset specicity affect product development? Yu-Xiang Yen and Shiu-Wan Hung

Journal of Business & Industrial Marketing Volume 28 Number 4 2013 276 287

virtual communities also showed that trust in communities signicantly and positively inuences knowledge sharing behavior in community members (Chen and Hung, 2010; Lin et al., 2009). In line with the above reasoning, this study develops the following hypothesis: H5. Buyer trust positively inuences the knowledge sharing between buyer and supplier.

operations and performance, including product development performance. Following the above argument, this study proposes the following hypothesis: H7. Supplier asset specicity positively inuences buyer product development performance.

Based on the above hypotheses H4 and H5, this study claims that buyer perceived relationship quality positively inuences knowledge sharing between buyer and supplier. 2.7 Knowledge sharing and product development performance In a procurement relationship, cooperative behavior relates positively to partnership performance (Lui et al., 2009). Improved information sharing among supply chain members can lead to improved supply chain performance (Zelbst et al., 2010). Hoopes and Postrel (1999) demonstrated that unique patterns of knowledge sharing can create a potential source of competitive advantage. In response to market uncertainty, channel members improve their operational strengths and problem-solving capabilities through knowledge sharing (Kotabe et al., 2003). Wu et al. (2007)) suggested that knowledge sharing helps enhance manufacturer competence to exploit local market opportunities. The ability to adapt products depends on the ability of buyers and suppliers to share tacit knowledge in production activities (Grant, 1996b). Takeishi (2001) proposed that increased knowledge sharing aids integrated problem solving between buyer and supplier, exploits partner knowledge and expertise, and enhances the resultant products and processes. Hong et al. (2004) showed that shared knowledge of customers and suppliers can positively affect product development performance. Technological knowledge sharing and knowledge sharing via face-to-face communication positively impact product performance (Lakshman and Parente, 2008). Knowledge sharing also mediates the contribution of relationship-specic investment to successful buyer-supplier partnerships (Luo et al., 2009). Lawson et al. (2009) showed that interorganizational knowledge sharing is positively associated with supplier contribution to development outcomes. Based on the above discussion, this study proposes the following hypothesis: H6. Knowledge sharing between buyer and supplier positively inuences buyer product development performance.

Based on the above hypotheses, this study proposes a conceptual model in which supplier asset specicity affects buyer performance in product development through the mediation of buyer relationship quality and knowledge sharing between buyer and supplier (see Figure 1).

3. Methodology
3.1 Measurement development This study developed and adopted construct measures adapted from the extant literature (see the Appendix for a list of the various scale items). Supplier asset specicity is measured using a ve-item scale adapted from Buvik and Grnhaug (2000). This construct of relationship quality used in this study comprises two dimensions, including buyer satisfaction and trust. The constructs of buyer satisfaction and trust were measured using scales adapted from Sanzo et al. (2003). The four-item scale of knowledge sharing and three-item scale of supplier contribution to product development performance were adapted from Lawson et al. (2009). Respondents were asked to grade all items using a ve-point Likert-scale (1 strongly disagree and 5 strongly agree). 3.2 Research setting, sample and data collection Taiwanese electronics rms were selected because they are leaders in electronic product manufacturing and inuential in the electronics industry, which is capital and knowledge intensive. This study builds the sample frame comprising buyer research and product development staffs involved in supplier related activities in these Taiwanese listed electronic rms. Those staffs contact and cooperate with suppliers in product development and manufacturing activities, and thus are an appropriate source of information regarding the studying issues, with good internal validity. The data collection process then focused on the responses of the staffs in the sampled rms. This study distributed 1,475 questionnaires to the sample rms via mail and e-mail. Respondents were asked to reply to the questions contained in questionnaire regarding their major suppliers. A total of 237 questionnaires were returned. Nevertheless, 19 questionnaires were inadequately completed and thus eliminated. Thus a total of 218 eligible questionnaires were received, representing an effective response rate of 14.8 percent. 3.3 Analysis method This study applies the structural equation modeling (SEM) to evaluate the collected data. SEM is a broadly and well recognized approach for empirical analysis. The generality characteristic of SEM provides researchers a marvelous method for quantication and theory examination purposes (Bollen and Long, 1993). This approach examines the relationships and structural equations among the constructs. Factor score regression weights of each factor enable continuous data to be used in the model. The general SEM formula is expressed as the following: 279

2.8 Asset specicity and product development performance Although the extant literature lacks the discussion of the relationship between asset specicity and product development performance, some studies have examined the inuence of asset specicity on rm performance. Dyer (1996) found that Japanese automakers and their suppliers, who have high asset specic investment in each other, outperform their US counterparts. Asset specicity thus positively affects both operation and business performance guez et al., 2008). Liu et al. (2009) proposed (Espino-Rodr that transaction-specic investments positively impact relational performance in buyer-supplier dyads. When a supplier invests in specic assets to service particular buyer needs, those assets can help improve buyer targeted

How does suppliers asset specicity affect product development? Yu-Xiang Yen and Shiu-Wan Hung

Journal of Business & Industrial Marketing Volume 28 Number 4 2013 276 287

Figure 1 Proposed conceptual model

y a By Gx 6

x is the latent independent variables, y is the latent dependent variables, a is the vector of dimensional parameters, B is the parameter matrix of regression between one latent dependent variable with another latent dependent variable, G is the parameter matrix of regression between one latent independent variable with another latent dependent variable, and d is the vector of residuals. In this study, suppliers asset specicity is the latent independent variable. Latent dependent variables consist of customer satisfaction, trust, knowledge sharing between buyer and supplier, and buyers product development performance. This study adopts some types of indices to assess its model t, including chi square over the degrees of freedom, incremental t indices consisting of comparative t index (CFI) and the incremental t index (IFI), non-normed t index (NNFI), and root mean square error of approximation (RMSEA).

constructs, this study calculates the composite reliability (CR) and average variance extracted (AVE). Ranging from 0.84 to 0.91, all composite reliabilities exceed the 0.6 criterion threshold, demonstrating that the constructs have good reliability. All the factor loadings and t-values are signicant and conrm the convergent scale validity. The AVE of each construct, ranging from 0.57 to 0.73, surpasses the 0.5 boundary and the squared correlation between constructs. The discriminant validity indicators thus were all acceptable. The research scales were conclusively demonstrated to obtain distinct components. 4.2 Research model t assessment The ratio of the chi square (283.82) over the degrees of freedom (145) is 1.96 which is below the 2.00 threshold and indicates that the proposed research model has good model t. Some other indices are used to examine the model t. The comparative t index (CFI) and incremental t index (IFI) are both 0.98, exceeding the 0.90 threshold and indicating that the model has good t. The non-normed t index (NNFI) is 0.97, also implying good t. The root mean square error of approximation (RMSEA) is 0.066, also indicating good model t. Concluding all the above goodness-of-t indices, this study achieves acceptable model t. 4.3 Results of hypotheses tests The study tests hypotheses H1-H7 and lists the results in Table III. H1 is supported at the signicant level of p , 0:001, which indicates that supplier asset specicity positively inuences buyer satisfaction. The results also show that supplier asset specicity positively inuences buyer trust, and H2 is supported at the signicant level of p , 0:001. Based on the supported H1 and H2, supplier asset specicity positively inuences buyer perceived relationship quality. However, H3 is not supported, and supplier asset specicity does not directly and positively inuences knowledge sharing between buyer and supplier. H4 is supported at the signicant level of p , 0:001, and buyer satisfaction positively inuences knowledge sharing between buyer and supplier. The ndings also demonstrate that buyer trust positively inuences the knowledge sharing between buyer and supplier, and H5 is supported at the signicant level of p , 0:001. Based on the 280

4. Data analysis and results

4.1 Data accuracy analysis Table I lists the means, standard deviations, and correlations for the scales. The study tests the robustness of the 19 items of the ve constructs using LISREL to run conrmative factor analysis (CFA). Table II summarizes the scale items and construct accuracy test. To evaluate the convergent validity of all Table I Basic statistics of the study
Constructs AS SA TR KS PD Mean 3.760 3.913 3.819 3.964 3.835 SD 0.765 0.654 0.619 0.687 0.669 AS 1.000 0.501 0.461 0.455 0.435 SA 1.000 0.682 0.594 0.484 TR KS PD

1.000 0.554 0.451

1.000 0.561

1.000

Notes: SD: Standard deviation; AS: Asset specicity; SA: Satisfaction; TR: Trust; KS: Knowledge sharing; PD: Product development performance

How does suppliers asset specicity affect product development? Yu-Xiang Yen and Shiu-Wan Hung

Journal of Business & Industrial Marketing Volume 28 Number 4 2013 276 287

Table II Accuracy analysis statistics

Construct Asset specicity Item AS1 AS2 AS3 AS4 AS5 SA1 SA2 SA3 TR1 TR2 TR3 TR4 KS1 KS2 KS3 KS4 PD1 PD2 PD3 Standardized loadings 0.80 0.80 0.85 0.87 0.73 0.86 0.83 0.78 0.78 0.75 0.87 0.87 0.82 0.81 0.64 0.75 0.84 0.89 0.83 Standardized error 0.35 0.36 0.27 0.25 0.46 0.27 0.32 0.40 0.39 0.44 0.24 0.24 0.33 0.34 0.59 0.44 0.29 0.20 0.31

T-value
13.93 13.82 15.27 15.66 12.20 15.09 14.26 13.08 13.29 12.53 15.75 15.78 14.00 13.83 9.99 12.25 14.87 16.15 14.53

CR 0.91

AVE 0.66

Satisfaction

0.86

0.67

Trust

0.89

0.67

Knowledge sharing

0.84

0.57

Product development performance

0.89

0.73

Notes: CR: Composite reliability; AVE: Average variance extracted

Table III Hypotheses results

Hypothesized path

T-value
8.44 7.04 1.17 5.60 3.56 6.14 2.75

Results 0.60 * * 0.53 * * 0.11 0.49 * * 0.27 * * 0.53 * * 0.21 *

H1 0041sset specicity ! Satisfaction H2 Asset specicity ! Trust H3 Asset specicity ! Knowledge sharing H4 Satisfaction ! Knowledge sharing H5 Trust ! Knowledge sharing H6 Knowledge sharing ! Product development performance H7 Asset specicity ! Product development performance
Notes: * p , 0:01; * * p , 0:001

supported H4 and H5, buyer perceived relationship quality positively inuences knowledge sharing between buyer and supplier. H6 is also supported at the signicant level of p , 0:001, and the knowledge sharing between buyer and supplier positively inuences buyer product development performance. Finally H7 is supported at the signicant level of p , 0:01, which indicates that supplier asset specicity directly and positively inuences buyer product development performance.

5. Discussion and managerial implications

The study examines the mechanism by which asset specicity of supplier investment in a buyer affects the performance of that buyer in product development, something neglected in the previous literature. Based on the review of the extant literature, buyer-supplier relationship quality and knowledge sharing signicantly inuence the impact of asset specicity on product development performance. This nding shows that buyer product development performance is enhanced both 281

directly by supplier asset specicity and indirectly through the mediation of relationship quality and knowledge sharing. This study also nds that supplier asset specicity positively inuences buyer satisfaction with and trust in suppliers, both of which determine relationship quality. Relationship quality thus signicantly and positively impacts knowledge sharing between buyer and supplier. Claro and de Oliveira Claro (2011) studied the question whether, with a high degree of transaction specic investments, buyers would engage more in collaborative joint efforts that coordinate activities and resources in a buyersupplier relationship. The nding of this study discloses that supplier asset specicity does not directly enhance buyersupplier knowledge sharing. Despite asset specicity can affect knowledge sharing through the mediation of relationship quality, the result of this study shows that even if suppliers would like to invest specic assets for buyers, the buyers may still doubt loyalty and commitment of the suppliers to them and hesitate to share condential information with the suppliers. The buyers need time to perceive trust and satisfaction toward

How does suppliers asset specicity affect product development? Yu-Xiang Yen and Shiu-Wan Hung

Journal of Business & Industrial Marketing Volume 28 Number 4 2013 276 287

their suppliers, and are subsequently willing to share knowledge with their suppliers. Supplier asset specicity has been shown to improve buyer-supplier relationships and buyer performance. However, previous studies have rarely emphasized the impact of supplier investment in specic assets on buyer performance in product development, particularly the reasons for and mechanism of that impact. The ndings of this study further clarify the mechanism of that effect. Knowledge sharing between buyer and supplier thus is a crucial route by which supplier asset specicity can affect product development. Changes in technology and market demand are normally rapid in hightechnology industries, in which product development is vital for high-technology rm survival. To accelerate product development and time to market, rms frequently urge or invite suppliers to become involved in their product development processes. Supplier involvement in buyer product development activities can be through providing tangible resources or knowledge. Owing to the knowledge intensive nature of product development, the contribution of suppliers to buyer product development performance derives partly from mutual knowledge sharing between buyer and supplier. The ndings of this study support this argument. Beelaerts van Blokland et al. (2008) showed that a higher collaborative innovation effort by partners in the supply chain leads to a signicantly decreased time-to-market and a signicantly positive change in market share. Buyer-supplier knowledge sharing is essential to the process of collaborative innovation. Therefore, improving buyer product development performance requires efcient and effective buyer-supplier knowledge sharing. Schedule planning and management is essential for successful product development. Schiele (2010) found that a well-organized and systematic program of innovation meetings with suppliers in new product development is a powerful tool that generates more innovative input for the rm. The implications for practice lie in that buyers communicate with suppliers and invite them to participate in initial product development to maximize supplier knowledge contribution. Such an approach will increase the exibility of the lead time before product development deadlines, thus avoiding accidental events. The close relationship between buyer R&D and supplier staff then helps provide immediate and customized solutions to problems. Sometimes informal discussion is a good way of building this close relationship. This study also demonstrated that supplier asset specicity directly and positively impact buyer product development performance, reecting supplier involvement in buyer product development via physical assets. Kleinaltenkamp and Ehret (2006) showed that with a growing share of collaboration, suppliers are forced to up-front specic investments in R&D or customer specic knowledge in order to be perceived as a potential business partner by a customer. To improve product development performance, this study implied that buyers can require their suppliers to provide products or services by investing in specic equipments, facilities, or even factories to meet their product demands. The restructuring of production processes and improving quality through such measures as increased yield rates are also ways in which suppliers can help buyers manage product development. Timely and considerate product adaptation by suppliers for buyers also directly affects product development performance. Although extant studies revealed that supplier asset specicity can lead to buyer-supplier knowledge sharing, the 282

literature has not claried the reason for this effect. Based on the practical perspective, suppliers willing to invest on behalf of a specic buyer tend to share information and knowledge with that buyer. This study shows that supplier asset specicity cannot directly enhance mutual knowledge sharing between buyer and supplier without the motivation of buyer perceived relationship quality. If suppliers make specic investments in buyer needs and assure buyer perceived relationship quality, that buyer will also like to share knowledge with the supplier. However, buyers frequently hesitate to disclose knowledge to their suppliers, especially knowledge related to sensitive technologies and product specications. This hesitation is generally motivated by fear that suppliers will leak buyer condential information to competitors, or even that suppliers will copy their technologies and products and become competitors. Therefore, buyers are very cautious about sharing knowledge with suppliers. Once a buyer feels satised with a supplier and conrms that supplier is trustworthy, the buyer perceives the relationship to be good quality and becomes more likely to share knowledge with that supplier. This study shows that for practice to build more cohesive relationships with customers of enhanced trust and satisfaction, suppliers should provide customers with effective communication (Sanzo et al., 2003; Yen and Horng, 2010; Yen et al., 2011) and instant support, protect customer interests, and deliver on promises made to customers. Subsequent knowledge sharing and buyer product development performance improvement can then benet the business of suppliers with buyers.

6. Research limitations and suggestions

The limitations of this study are discussed below, as are future research suggestions. The rst limitation is that this study only examines the electronics industry in Taiwan. Although Taiwanese electronic rms are leaders in global high technology manufacturing, other countries, such as America and Japan, are more advanced than Taiwan in product development. This investigation thus could be extended to test other countries. Moreover, product development activities are regularly conducted in numerous industries, including traditional industries. Future studies thus can replicate the present survey in other industries. Consequently, investigations of other countries and industries can help generalize the ndings of this study. The second limitation of this study lies in the denition and dimensions of the relationship quality construct. This investigation adopts satisfaction and trust as dimensions of relationship quality. Nevertheless, the denitions of relationship quality used by some researchers also include other dimensions, such as commitment, information sharing, and communication. Future research thus can adopt different relationship quality constructs to examine the model proposed in this study. The importance of the relationship between supplier asset specicity and buyer product development performance is well recognized. However, the literature has neglected the critical roles played by relationship quality and knowledge sharing in that relationship. This study proposes a brand-new model to explain the mechanism of that relationship, but further research is required to better understand related issues.

How does suppliers asset specicity affect product development? Yu-Xiang Yen and Shiu-Wan Hung

Journal of Business & Industrial Marketing Volume 28 Number 4 2013 276 287

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Relationship quality Satisfaction . The supplier is a good company to do business with. . The personal working relationship with the supplier is very satisfactory. . If we had to select a supplier again for the product, we would doubtlessly choose our current supplier. Trust . Though circumstances may change, we believe that the supplier will be ready and willing to offer us assistance and support. . We feel this supplier is looking out for our interests. . The supplier can be relied on to keep their promises. . Our supplier is trustworthy. Knowledge sharing . Our engineers and sales staff have a close relationship with this suppliers staff. . Frequent contact between this supplier and our engineers during the development process is important. . Through informal discussion, this supplier often communicates important engineering information to us. . Communication with this supplier often begins to occur earlier in the development process. Supplier contribution to product development outcomes . In the last 2-3 years, we have continued to be able to improve product design performance through this supplier relationship. . In the last 2 3 years, we have continued to be able to improve process design through this supplier relationship. . In the last 2-3 years, we have continued to be able to improve product quality through this supplier relationship.

About the authors

Yu-Xiang Yen is currently a post doctor researcher at the Department of Business Administration of National Central University, Taiwan. He received his PhD from the Department of Business Administration of National Central University, Taiwan. He had a couple of years of working experience in Taiwans electronics industry and his research interest focuses on leveraging manufacturing strategy for performance improvement and industrial development based on his practice experience. Shiu-Wan Hung is currently the Associate Professor at the Department of Business Administration of National Central University, Taiwan. She received her PhD from the Institute of Business and Management of National Chiao Tung University, Taiwan. Before this, Dr Hung earned her M.S. from the University of Wisconsin-Madison in the USA and completed her B.S. at National Chengchi University of Taiwan. Her research mainly focuses on areas of technology management, knowledge management, and performance management. Dr Hung has had articles published in Information & Management, Scientometrics, Technovation, Computers & Operations Research, European Journal of Operational Research and other journals. Shiu-Wan Hung is the corresponding author and can be contacted at: shiuwan@mgt.ncu.edu.tw 286

Appendix. Questionnaire items

Asset specicity . Our supplier has carried out considerable product adjustments in order to meet the requirements from our company. . Our supplier has to a great extent invested in production equipment in order to adjust to our purchasing requirements. . Our supplier has committed a lot of time and specic resources to the restructuring of his production to achieve higher efciency and quality for products delivered to our rm. . Our supplier has committed substantial resources to meeting our product control requirements. . Our supplier has to a great extent adjusted ordering effectuation and the follow-up of orders to the ordering routines of our company.

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Executive summary and implications for managers and executives

This summary has been provided to allow managers and executives a rapid appreciation of the content of this article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benets of the material present. When suppliers and buyers do business, it is often a matter of give and take, you scratch my back and Ill scratch yours etc. The difculty is in making sure not all the giving, taking and scratching is one-sided. Changes in technology and market demand are normally rapid in high-technology industries, in which product development is vital rms to survive. To accelerate product development and time-to-market, rms frequently urge suppliers to become involved in their product development processes. Supplier involvement in buyer product development activities can be through providing tangible resources or knowledge. Owing to the knowledge-intensive nature of product development, the contribution of suppliers to buyer product development performance derives partly from mutual knowledge sharing between buyer and supplier. However, buyers frequently hesitate to disclose knowledge to their suppliers, especially knowledge related to sensitive technologies and specications. This hesitation is generally motivated by fear that suppliers will leak information to competitors, or even that suppliers will copy their technologies and products and become competitors. As a result, buyers are cautious about sharing knowledge with suppliers. However, once a buyer feels satised with a supplier and conrms that supplier is trustworthy, the buyer perceives the relationship to be good quality and is more likely to share knowledge with that supplier. To improve product development performance, the introduction of external resources, particularly from suppliers, has become crucial to product development. Suppliers are therefore crucial to successful buyer product or service development. Since product development is a knowledge-intensive activity, knowledge-sharing between buyers and suppliers in product development is critical to buyer product development performance. A suppliers willingness to invest in specic assets for buyers signicantly inuences buyer-supplier knowledge-sharing. In How does suppliers asset specicity affect product development performance? A relational exchange perspective Yu-Xiang Yen and Shiu-Wan Hung propose that supplier investment in specic assets for buyers can improve buyer perceived relationship quality, making buyers feel relieved and willing to share knowledge with suppliers. They argue that relationship quality and knowledge-sharing are critical for transforming supplier asset specicity to enhance buyer product development performance. They found that buyer product development performance is enhanced both directly by supplier asset specicity and indirectly through the mediation of relationship quality and knowledge-sharing. Their study also found that supplier asset specicity positively inuences buyer satisfaction with and

trust in suppliers, both of which determine relationship quality. Relationship quality thus signicantly and positively impacts knowledge sharing between buyer and supplier. Asset specicity has been dened as the degree to which an asset can be redeployed to alternative uses by alternative users without sacricing productive value. Asset specicity refers to durable investments in physical or human assets that are dedicated to particular transactions and entail considerable switching costs or lose value if these assets are redeployed for any other purpose. A further denition describes asset specicity as a tangible or intangible asset with little value outside of a particular relationship. An asset-specic investment is a strategic tool for bonding partners together as partners with long-term bonds are expected to behave in a trustworthy manner. Schedule planning and management is essential for successful product development. Buyers need to communicate with suppliers and invite them to participate in initial product development to maximize supplier knowledge contribution. Such an approach will increase the exibility of the lead time before product development deadlines, thus avoiding accidental events. The close relationship between buyer R&D and supplier staff then helps provide immediate and customized solutions to problems. Sometimes informal discussion is a good way of building this close relationship. Supplier asset specicity directly and positively impact buyer product development performance, reecting supplier involvement in buyer product development via physical assets. To improve product development performance, buyers can require their suppliers to provide products or services by investing in specic equipment, facilities, or even factories to meet their product demands. The restructuring of production processes and improving quality through such measures as increased yield rates are also ways in which suppliers can help buyers manage product development. Timely and considerate product adaptation by suppliers for buyers also directly affects product development performance. Suppliers willing to invest on behalf of a specic buyer tend to share information and knowledge with that buyer. This study shows that supplier asset specicity cannot directly enhance mutual knowledge sharing between buyer and supplier without the motivation of buyer perceived relationship quality. If suppliers make specic investments in buyer needs and assure buyer perceived relationship quality, that buyer is also like to share knowledge with the supplier. Satisfaction is critical to buyer-supplier relationships, and is a key reason for buyers to continue such relationship and engage in business with suppliers. Satised buyers typically wish to continue trading with current suppliers, enabling further co-operation between the two sides. Inter-rm knowledge sharing is based on close co-operation among the parties involved, and investment in the process generally requires both money and resources. cis of the article How does suppliers asset specicity affect (A pre product development performance? A relational exchange perspective. Supplied by Marketing Consultants for Emerald.)

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