Journal of Entrepreneurship and Business Venturing

Vol 3, Issue 1, 2023, PP. 192-220

Effects of Supply Chain Management Practices on Technological Innovation in

Restaurant Industry of Pakistan: The Mediating Role of Guanxi
Aamra Saleem
Karachi University Business School, University of Karachi, Pakistan.
Sarah Anjum
Karachi University Business School, University of Karachi, Pakistan.
anjum.sar@uok.edu.pk

Corresponding: aamrasaleem12@gmail.com

ARTICLE INFO ABSTRACT

Article History:
Received: 30 Dec, 2022
Revised: 01 Feb, 2023
Accepted: 22 Feb, 2023
Available Online: 27 Feb, 2023
DOI:
https://doi.org/10.56536/jebv.v3i1.43
Keywords:
Supply Chain Practices,
Technological Innovation, Guanxi
JEL Classification:
O31, J53
The purpose of this research is to find out that what impacts does the supply
chain practices leaves on technological innovation. As we all know that
Pakistan is the developing country, and the restaurant industry is emerging for
the past few years. This study was conducted by using some supply chain
practices including strategic supplier partnerships, customer relationships,
information quality, information sharing, and internal operations as
independent variables, whereas technological innovation as dependent
variables. Guanxi used as a mediator. The sample size was 232. We collected
data with the help of questionnaires. The sampling technique was Exponential
discriminative snowball. The questionnaire consisted of 43 items. Smart PLS
was used to analyze structure equation model. Result concluded that supply
chain practices impact positively on product and process innovation. Moreover,
Guanxi mediates the relation among Strategic Supplier Partnership and
Technological Innovation, Information Sharing and Technological Innovation,
Internal Operations and Technological Innovation whereas no mediation exists
among Customer Relationship and Technological Innovation, Information
Quality and Technological Innovation. Decision makers, restaurant owners and
managers can use these findings to formulate their strategies to gain competitive
advantage. This study helps managers to improve their practices and move
towards innovation. This paper will also help researchers in their ongoing
research in which guanxi plays the role of mediator.
© 2023 The authors, under a Creative Commons Attribution-Non-Commercial No-Derivatives
4.0.

INTRODUCTION
Background:

Restaurant industry in Pakistan is emerging as a major part in food service for past two years. With
the changing world, people of all ages are now increasingly going towards eating at restaurants
(Soriano, Moltó, and Mañes 2000). Arshad & Zahoor stated in their study that because of a busy and
hectic schedule, people are preferring dine out or simply order food instead of preparing it themselves
and this thing is nowadays becoming a trend (2019a). There are around more than 75,000 restaurants
in Pakistan, including small roadside food stalls. Many of the restaurants in Pakistan are based on
small & medium area owned by single owners (Akbaba, 2012). Nowadays dine out is more preferable
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by people (Arshad and Zahoor 2019a). He also stated that in the very first stage, there should be some
innovation in supply chain techniques to walk side by side with the demand. (Arshad and Zahoor
2019b). Supply chain management makes functions become coordinated and business operations can
run smoothly without any bottleneck. Some studies identified the role of supply chain practices in
generating outcomes related to innovation (Minguela-Rata, Fernández-Menéndez, and Fossas-Olalla
2014; Sundram et al. 2018; Tu, Hwang, and Wong 2014; Wong, Wong, and Boon-itt 2013; Xu et al.
2017). In this fast-growing era, supply chain management becomes a crucial element to be considered
to gain competitive advantage because it can make overall performance better by implementing
technological resources in the firm.

SCM practices are crucial part for any business. Some of its practices include customer relationship,
supplier relationship, sharing of information, information quality, lean practices, quality management
and internal operations (Chong et al. 2011a; Li et al. 2005a; Perry and Sohal 2000; Sohal, Power, and
Terziovski 2002). It is not necessary that only food safety is sufficient for customer satisfaction
(Arshad and Zahoor 2019b). transmitting of information and innovation has gained so much fame in
the last few years (Nguyen et al., 2016; Berge-Gil, 2010; Adobor, 2006; Dahlin and Behrens, 2005).
Supply Chain coordination has an important place in businesses, it integrates all the partners of value
chain which results in the better performance of the firm (Soroor, Tarokh, and Shemshadi 2009).
Companies should work with strategic supplier partners and customers for the enhancement and
development of new product (Li et al. 2005b).

Another thing is customer relationship, which is equally and may be more important than other factors
in the betterment of supply chain practices; these days customers desires for new and advance product
for themselves, this is the reason that Arshad and Zahoor in their study clearly said that focusing only
on food quality is not enough but making your customer happy and satisfied in more important(2019a).
For defining customer relationship, the term Guanxi is used. It is a Chinese term which means
strengthening interpersonal relationships which are important for Small and medium Enterprises (Cui,
Wen, & Qin, 2013; Sheng, Zhou, & Li, 2011; Gu, Hung, Tse , 2008; Park & Luo, 2011; Lovett,
Simmons, & Kali, 1999). It means to gather data and knowledge from outside links (Fu, Diez, &
Schiller, 2013). Guanxi (connections) has a vital role in linking different parties in supply chain
management. If Guanxi is adopted in the right way, it can result in the development of supply chain
partnership, effective and efficient management of operations and coping with challenges (Wong et
al. 1999). Guanxi is the most important element to flourish trade relations and in negotiation (Leung,
Wong, and Wong 1996). In Chinese firms, managers regard guanxi as an important factor, according
to them strong connections and relations with the other party flourish trust and give a successful
business (2006). Guanxi and supply chain shares a strong connection (Lee and Humphreys 2007).
Therefore, based on above discussion we can hypothesized that Guanxi can bring perfection in buying
and selling and can lower the cost (Lovett et al., 1999).

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We can say innovation as Novelty in processes, structure, management, services, and product (López-
Nicolás & Meroño-Cerdán, 2011). According to Freeman (1982), Innovation is the introduction of
new better product and bringing new ideas in the business operations. Making new products known to
the customers is called innovation. (Bessant & Tidd, 2007). Manufacturing firms can increase the
product differentiation by bringing innovation, making the process better and technological and
making short production cycle with the help of innovation (Zhang & Lu, 2015). In research, supply
chains must adopt product development (Bechtel & Jayaram, 1997). By process innovation, we simply
want to say new production methods that can bring profits to the firm (Zhang & Lu, 2015). For product
innovation, all the sources are needed whether they are social or related to technology (Zhang, Zhao,
& Lyles, 2018; Nonaka, 1994). By technological innovation, firms can gain competitive advantage
(Zhang & Lu, 2015). Due to fast paced world, firms have a pressure to perform better and better than
before. If we talk about Pakistan’s market, there should be proper guidance and training regarding
adoption of technological innovation in their supply chain practices. According to some previous
researches, firms can bring some improvement in their operations by total quality management but
these studies talk very little or no about the technological innovation in SCM.

If information quality is used properly with information, it can result in a profitable business.
According to a researcher, there are five dimensions of information quality which are access,
available, relevant, on time, accurate (Lee and Strong 2003). In the past few decades, the methods of
firm to get in touch with stakeholders and the way of management has been changed and for this
supply chain practices technological innovation used as an important factor. Supply chain practices
impact in a positive way on innovation with other operational performance of the organization (Khalil,
Khalil and Khan., 2018). Internal operations, postponement, strategic supplier partnership, and guanxi
have significant associations through technological innovation (Lee et al., 2018). Many previous
research scholars have used supply chain practices for organizational performance (Azmi et al., 2018;
Janaki et al., 2018; Chavez et al., 2013; Liu et al., 2013; Gimenz et al., 2012; Ramanathan, 2012;
Sukati et al., 2012). With addition to this, limited empirical evidence has confirmed in how many ways
supply chain practices together do not affect technological innovation, nor any previous researchers
take any interest in working on the linking technological innovation and SCM practices with the help
of guanxi in Pakistan’s restaurant industry.
Besides some importance of SCM practices on performance of any firm, only a few previous studies
added up practices of SCM and TI in different areas. This research will explore SCM practices,
which will be linked with the technological innovation of the restaurant industry of Pakistan along
with guanxi.
Problem Statement:

Strategic supplier partnership, customer relationship, information sharing, information quality,

internal operations are some of the components of the firm’s supply chain management. Over the past
few decades, the ways a firm interacts and manages its partners is changing, in this evaluation of
supply chain practices technological innovation used as a key component.
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These SCM practices influence significantly on innovation along with the operational performance of
the firm (Khalil, Khalil and Khan., 2018). Internal operations, postponement, strategic supplier
partnership, and guanxi have significant associations through technological innovation (Lee et al.,
2018). Many previous research scholars have used supply chain practices for organizational
performance (Azmi et al., 2018; Janaki et al., 2018; Chavez et al., 2013; Liu et al., 2013; Gimenz et
al., 2012; Ramanathan, 2012; Sukati et al., 2012). Moreover, limited empirical evidence has confirmed
in how many ways supply chain practices together do not affect technological innovation, nor any
previous researchers take any interest in working on the relationship of SCM practices with TI in the
restaurant industry of Pakistan that too with the guanxi as mediator.

Besides significance of SCM practices on organizational performance, only a few previous studies
compressed practices of supply chain management and technological innovation in different sectors.
Headed forward to lean the difference in the literature, this research will explore SCM practices, which
will be linked with the technological innovation of the restaurant industry of Pakistan along with
guanxi.
Objective Of Study:

The aim of this research is to determine the effect of SCM practices encompassing of strategic supplier
partnership, customer relationship, information sharing, information quality, postponement, internal
operations on technological innovation of restaurant industry of Karachi, Pakistan; along with the
mediating role of guanxi.

Research Questions:

• How is the strategic supplier partnership affecting on technological innovation?

• How is the customer relationship affecting technological innovation?
• How is the information sharing affecting on technology innovation?
• How is the information quality affecting on technological innovation?
• How are the internal operations affecting on technological innovation?
• What is the mediating role of guanxi among strategic supplier partnerships, customer
relationships, information sharing, information quality, postponement, internal operations on
technological innovation?
Limitations:
• Researchers will be able to improve their understanding after getting the results of this study.
Hence, the limitations must be recognized.
• The main restriction is that this research has taken just a few types of supply chain
• practices as its dependent variables therefore future researchers can focus on other
practices of supply chain management.

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• Furthermore, one more thing limits this study that we have collected the data only from one
city of Pakistan; Karachi. Future researchers can collect data from all over Pakistan and other
countries.
Significance of the Study
This study contributes to the restaurant industry and food service sector, it reveals how much supply
chain management practices are significant for the development of new products and for bringing
innovation in the existing process. Secondly, it will be significant for the suppliers, customers and for
the internal operations of the firms.
Structure of the Study
Further paper consists of four sessions. The literature review comprises of theoretical background,
empirical review, and conceptual model. The next section consists of methodological details of the
study. After methodology, statistical analysis and their outcomes are discussed. At the end, there is
conclusion, discussion, and future recommendations.

LITERATURE REVIEW
Theoretical Background

Supply Chain Practices

Supply chain management practices are explained in many ways. Li et al. defined SCM practices as a
collection of activities that are efficiently performed by any organization. ( Li et al. 2005b). Nowadays,
almost every organization regard SCM as a vital part to build a sustainable competitive edge for their
products or services in an increasingly competitive marketplace.

Strategic Supplier Partnership

Strong supplier partnership makes an easy supplier integration (Pakurár et al. 2019). When partners
and suppliers of the organization works collectively as a team to achieve goals in long run is called
strategic supplier partnership (Soroor et al. 2009).According to Luo, there are two groups for joint
ventures i.e. before forming the joint venture, it is according to the selection criteria of partners and
the other one is criteria related to cooperation. (Luo 1997b). A strong relationship with supplier and
customer is the first step on the road to success of supply chain that is more quick and agile to changing
demands. If collaboration with supply chain members is strong, firm can easily catch market
opportunities with a quick speed. It can also solve many unsolved problems and new products can be
brought to the market with a faster speed.

Customer Relationship

A firm’s customer is the most precious and crucial part for any business. Their role in service and
benefits realization cannot be ignored (Vargo and Lusch 2004). When relationship with customer
improves, it also helps in improving the monetary outcomes of the firm (Battor and Battour 2013).
According to Adrian Payne & Pennie Frow, Customer relationship is this much important for any
business that if businesses invest on customer relationship once, in return they give them back 10 times
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(Payne and Frow 2005).Nowadays, in this competitive business world, it has become very difficult to
hold a customer because these days buyers have more knowledge, are more experienced and
unforeseeable (Buttle, Buttle, and Ryde n.d.; Noble and Phillips 2004). Because of this, building and
strengthening relationship is now required more philosophy (Noble and Phillips 2004). In addition,
there are some technological developments which came from progression in technology. If you look
for more determination in enhancement in the value of customer relationship comes about from
process innovation such as making supply chain more responsive and agile (Farrington‐Flint et al.
2008; Paton and McLaughlin 2008).

Information Sharing

It is the getting, processing, and translating the useful information with the stakeholders of the firm.
There is a very crucial role of information sharing in businesses. Information sharing means sharing
of all the relevant and important information, proficiency and recommendations with each other in
the organization (Bartol and Srivastava 2002). In Andrew Brod and Ram Shivakumar’s study, it was
said that information should have to be given in a combination process with cuts the risk (1997). The
best and most important information sharing information within the organization (Li and Lin 2006).
The process of decision making also becomes because of IS (Ramon Gil-Garcia, Chengalur-Smith,
and Duchessi 2007). Sharon S. Dawes (1996) said that according to a study related to inter-
organization information sharing, any firm should know that if any unfavorable circumstance occurs
in the organization it can be first solved by information sharing. He also wrote that because of
information sharing the probability of risks goes down, results in better decision making, and it also
strengthen the bonds with each other (Dawes 1996). To enhance fruitful relationship with supply chain
stakeholders an organization should think about information sharing as an important aspect (Li and
Lin 2006).

Information Quality

For ensuring strong social links and creating an overall trustable organization, Information quality and
knowledge sharing both have a vital (Molina et al., 2004). Lalonde (1998) from five pillars of supply
chain practices, quality information is one of them, which helps in the firm’s operations. Information
quality is a significant part which leads and organization to the road of success (TC, 1996). If the
supply chain partners of the firm work on gathering information jointly as a team and consider
information quality and information sharing as an important part, this thing will save their cost, time
and they have to strive less (Stein and Sweat, 1998).

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Internal Operations: Internal operations like external operations also have a significant role in any
organization. According to Lee, internal operations includes some systems that a person can work on,
managing the flows of production, and helps team members to counter the change in market quickly
(Lee et al., 2018). A successful Supply chain management must have the ability to perform inter
organization operations in this way that it can forecast the supply chain performance as whole
(McAdam and McCormack 2001; Van Hoek 1998). In-bound and Out-bound logistics are the two
more important aspects of supply chain management (Mabert and Venkataramanan 1998). If the firms
add in-bound logistics at the start of product development they will get benefited and all the
disadvantages will be pointed out related to the cost efficiency and effectiveness (Tracy, 2004).

Guanxi

It is a term from Chinese language means having personal social and influential relationships,
networks, connections, or trust on one another. The word “Guanxi” was composed of two words i.e.,
“Guan” (meaning “pass” or “fortress”) and “Xi” (meaning “inter-connected”). It is also beneficial
for the betterment of businesses. According to Peng and Luo, guanxi is an in-person relation which is
used to have favors from others (2000). It can be the relations between exchange partners i.e. with
consumers, rivals, new commers, and the main suppliers also (Luo 1997a). Guanxi is like a lifeblood
for any organization and without guanxi business functions cannot run smoothly (Anon n.d.). There is
an important part in the expansion of business and commerce by fostering relationships among
business partners and government (Fu, Revilla Diez, and Schiller 2013). There are two essential
aspects of guanxi.

• Connections with buyers, suppliers, business middlemen & competitors.

• Connections with government representatives at different government related mediations.
Guanxi can be flourish among relatives, friends and with government bodies. When it is with
government bodies, companies can have financial benefits (Chen and Wu 2011).According to another
study it is also helpful in getting data and information which everyone cannot access to (Gu, Hung,
and Tse 2008). Relationships by guanxi are made on joint trust and perception and creates win win
situation for everyone (Anon n.d.; Cheng, Yip, and Yeung 2012; Chong et al. 2011b). Guanxi is the
base of gaining competitive advantage for small and medium enterprises. It helps them making
business fruitful and profitable through social relationships (Ouet et al, 2014). In some research, it was
found out that Guanxi plays a crucial role in business operations (Fock and Woo 1998; Tsang 1998).
Guanxi is popular as a basic part for business achievements among partners (Cui et al. 2013). In one
study, guanxi was defined as a connection with goes with norms also (Cheng et al. 2012).

Technological Innovation

Innovation is the foundation for building competitiveness in this era (Lee et al., 2018). European
Commission (1996) defines innovation in three ways: (a) to explore and establish new ways to
produce, supply and distribute; (b) re-engineering of processes; (c) continuous expansion and
renewing in product and service according to market need. Previous studies show that TI is categories
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into various ways, Like Chuang (2005) divide innovation into administrative and process, while
Mavondo et al. (2005) categorized it into a product, process and administrative. Most of past
researchers (Cooper, 1998; Damanpour & Gopalakrishnan, 2001; Prajogo & Sohal, 2001; Chong et
al., 2011; Lee et al., 2018) mainly discussed product and process innovation under the umbrella of TI.
It is an extended form of product innovation, service innovation and process when an organization
performs its operations with its supply chain partners side by side (Cao & Zhang, 2011). Innovation
process and product concern in customer satisfaction and efficiency in work (Roy et al., 2004; Seo et
al., 2014). Technological innovation helps firms to enhance their productivity and capital along with
improvement in supply chain practices (Christopher, 2005). Normally, innovations take place in
processes, strategies, services, and organizational structures (Rogers, 2003). ( Roberts & Amit, 2003;
Muiruri & Ngari, 2014; Bátiz-Lazo & Woldesenbet, 2006) enlightened the unquestionable value of
product and process innovation along with attaining resilient keenness plus higher financial
performance in this sector. Organizational performance can be improved when its functions run
effectively and efficiently (Zafar, 2021).

Process innovation involves the changes in tools, techniques; software', which results in efficiency in
production and supply chain, processes (Bi et al., 2006). Damanpour and Gopalakrishnan (2001)
defined product innovation as a way of developing a product or delivering services along with
uniqueness in one's product or service, so the expectations and needs of the clients can stand satisfied.
Furthermore, here we have discussed the role of technological innovation in the sense of the restaurant
industry of Pakistan.

Empirical Review

H1: There is a significant effect of strategic supplier partnership on technological innovation.

Khalil, Khalil and Khan (2018) studied how the organizational performance effect by supply chain
practices along with innovation as the mediator in SMEs. The paper uses strategic supplier partnership,
degree of sharing information, intensity of information sharing, internal SCM processes and lean
practices as independent variables, innovation as a mediator, whereas performance of organization as
dependent variable. Since the study is quantitative in nature therefore the paper gathers data from 207
enterprises. The data was collected from SME of Punjab, Pakistan. In this paper, PLS-SEM approach
was used to test the theoretical model. The finding was that sharing information and partnership with
strategic supplier has no impact on organizational performance. On the other hand the other factors
influence significantly on the performance of the firm. Although entirely all SCM practices had a
positive and significant impact on innovation. The outcomes of the study were beneficial for the
managers in improving performance of SMEs.

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Huo, Li, and Zhao (2018) evaluated the relation between supply chain coordination and innovativeness
by collecting 617 survey questionnaires from Chinese manufacturing firms. The techniques they used
are structural equation modeling and exploratory factor analysis. The outcomes show that the
coordination of supplier positive and significant influence on the manufacturer, customer coordination,
and supplier innovativeness. Manufacturer coordination stimulates manufacturer innovativeness and
customer coordination. Supplier innovativeness directly increases manufacturer innovativeness and
indirectly improves financial performance with the help of manufacturer innovativeness. In future
researchers may use longitudinal analysis to an improved understanding of the effects of supply chain
cognition. This research only used data of Chinese firms; future researchers can extend a similar study
by generalizing the target population.

Kalay and Lynn (2015) recognized the impact of strategic innovation management practices on firm
innovation performance. The study intends to explore the influence of innovation culture,
organizational structure, technological capability, innovation strategy, and customer and supplier
relationships, which are considered in the literature as strategic innovation management practices in
business enterprises, on firm innovation performance. Since the study is quantitative in nature,
therefore the paper uses a structured questionnaire for data collection from 132 managers of 66 firms
operating in the manufacturing sector of Turkey. With the help of structural equation modeling (SEM),
the proposed hypotheses are measured and tested over software package SmartPLS 3.2.0. The findings
of the paper reveal that there is a positive impact of IS, OS, and IC on firm innovation performance.
However, there is no significant impact of TC and CSR on firm innovation performance.

H2:There is a significant effect of customer relationship on technological innovation

Dekoulou and Trivellas (2017) enlightened special effects of structure innovation performance of
organization, value of relationship with customers in Greek media and advertising industry by using
163 survey questionnaires. PLS is used to test the association among variables. The findings reveal
that performance through innovation in the marketing business to business market nurture the business
customer relationship and business financial performance meanwhile, monetary, and fiscal outcomes
are also positively exaggerated by a gainful relationship with the customer's relationship. The study
has a role in previous marketing affiliation literature as it defines the scopes of structure of
organizational and numerous parts of performance in the media and advertising industry; it is also
reveals that there is a mediating role relationship with customers flanked by innovation and financial
performance in the B2B market. It is concluded that directors should focus on the trainings,
coordination’s, supervision which results in competitive advantage-built trough creativity, innovation,
and customer relationship.

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Zhang and Shuang (2015) explore the influence of intellectual capital on technological innovation
inside a firm and transitional impact of supply chain learning concerning different views of intellectual
capital and technological innovation. 167 technological manufacturing firms in China filled survey
questionnaires. The results of the study reveal that dimensions of supply chain learning have a direct
impact on technological innovation, i.e., learning from suppliers and customers’ effect significantly
on technological innovation, and learning from customers exert a more significant effect on
technological innovation. Whereas from the four dimensions of intellectual capital, only two
dimensions, external and internal social capital exert a significant impact on technological innovation.
Future researchers must extend the current study by taking longitudinal data instead of cross-sectional
data. By doing so, researchers would be able to explore the changes due to time and provide statements
over the relationship between the variables.

H3:There is a significant effect of information sharing on technological innovation

Cao and Ziang (2012) analyze the influence of knowledge governance on knowledge sharing. The
keen objective of this study is to find out the impact of governance on sharing of knowledge in the
presence of guanxi as mediator. Researchers collect data from the 339 employees of Chinese strategic
firms. The findings disclose that governance play a vital role in sharing of knowledge, whereas there
is a partial mediating impact of guanxi among informal knowledge governance and sharing of
knowledge and the full mediation exist among formal knowledge governance and sharing of
knowledge. Moreover, the results of the study give an overview to the strategic firms of China to
recognize the influence of knowledge governance on sharing of knowledge consequently it improves
an organizational guanxi for social and economic benefits. There will be enhancement in effects of
guanxi in Chinese firms. In future researchers will develop a large- scale questionnaire and collect
data from different countries to explore the impact in more detail.

Sumner (2015) used the interagency information sharing theory to analyze the benefits, risks,
experiences, and rewards associated with sharing of information. The scholars investigate the previous
literature and understand the effects of knowledge sharing among employers of health care institutions.
The findings show the efficient use of technology and theory in implementing information sharing
technologies by professionals belongs to human resource in the organization. After this study,
organizations and systems can evade numerous issues allied with hiring employees.

H4:There is a significant effect of information quality on technological innovation

Hamdoun, Jabbour & Ben Othman (2018) explores the effect of information quality and
environmental management on firms' innovation by using the role of knowledge transfer. Its focus is
on the involvement of quality and environment management on the firm’s performance.136 survey
questionnaires by gathered from companies operating in Tunisia. The results of structural equation
modeling indicate that information quality and environmental manage. Usually, businesses appliance
quality management first, shadowed by environmental management, because of the privation of

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environmental know-how and financial capitals. Although, quality management practices can develop
resources and structures that may be used in employing environmental management practices.

Li & Lin (2006) investigates the role of information sharing and information quality in SC practices,
it empirically examines the influence of inter organizational relationship, environmental uncertainty,
and intra organizational facilities on information sharing and quality of information in the SCM.
Multiple regression analysis was performed on the data collected from 196organizations to assess the
factor affecting information quality and information sharing. The findings reveal that information
quality and information sharing are significantly trusted by strategic partners in supply chain and
adversely negative by uncertainties in supply chain. Although, the upper management has a positive
impact on the sharing of the information however the opposite views about information quality.
Furthermore, the results expose that the relationship with partners play an important role in the
implementation of the supply chain practices. The imminent worth of information quality and
information sharing is based on the information which is not available. Moreover, there are some most
significant factors in differentiating among the firms with low level of information sharing and quality
and high-level of information sharing and information quality.

H5:There is a significant effect of internal operations on technological innovation

Lee, Kwon and Severance (2007) exemplify the relationship between supply chain connections and
supply chain performance. Supply chain linkages comprise of linkages among customers, suppliers,
stakeholders, and internal integration i.e., internal operations. While supply chain performance
includes cost containment and reliability of supply chain partners. Out of 400 distributed
questionnaires, 122 questionnaires were considered as valid for a multiple regression model. The
outcome shows that internal integration is a most chief contributor to cost containment, although
incorporation with suppliers is a significant approach for achieving reliable supply chain performance,
It further concludes that if electronic ordering systems are available for customers, so the customer
performance will be more reliable and operation are fast and easy. Moreover, operations will be more
convenient and smoother if there will be connectivity among customers and suppliers.

H6:There is a significant the mediating role of guanxi among strategic supplier partnership,
customer relationship, information sharing, information quality, postponement, internal
operations on technological innovation
Wang and Chen (2018) examine the competitive advantages of guanxi by giving references from high-
tech firms in Taiwan science parks. The variables used in this study are guanxi and innovation
performance whereas size and age of firms are used as control variables. This study uses a sample of
144 well reputed firms in Taiwan Science Park. To test the hypothesis researchers, use nonlinear
regression. This study concludes that higher guanxi is directly linked with the innovation performance
of high-tech firms up to a definite point, beyond this further increase of guanxi shows diminishing
benefits, which results in decreasing innovation performance of the firms. Furthermore, it is concluded

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that in business networks guanxi as a competitive advantage can significantly improves the innovation
performance of the firms in Asian countries.

Zhang and Hartley (2018) studied guanxi, IT systems, and innovation capability along with the
moderating role of proactiveness in China. The paper scrutinizes how SMEs enhance their innovation
capabilities by deploying resilient IT systems and guanxi with the stakeholders. The paper uses IT
systems and guanxi as an independent variable whereas proactiveness as mediating and innovation
capabilities in new product performance as a dependent variable. By using random sampling, the paper
collects data from exporting Chinese SMEs in the manufacturing industry. Moreover, with the help of
a structured survey questionnaire, the paper gathers data from 210 industries. With the help of
variance-based structural equation modeling (SEM), the proposed hypotheses are measured and tested
over software package SmartPLS 2.0. The findings show that IT systems are significantly related to
innovation capability. Further, the relationship between guanxi and innovation capabilities is
significant for firms that have a high level of proactiveness but not significant when proactiveness is
low.

Chu, Feng, and Lai (2018) investigate innovation in logistic services by third-party logistics providers
in China. The researchers use political guanxi and business guanxi as dependent variables and
innovation in third-party logistics services as a dependent variable, whereas organization structure
plays a mediating role, ownership, firm size and firm age are controlled variables. Survey data was
collected from the 165-3PL provider of China. Findings reveal that business guanxi and political
guanxi have a positive impact on logistics service innovation. Political guanxi impact more effectively
on third party logistic providers because of its centralized organization structure. Further research may
investigate the nonlinear relationship between guanxi and innovation meanwhile 3PL services.

Jiao et al. (2016) investigate the relationship between entrepreneurial abilities and technological
innovation with the moderating effect of ownership. The data was gathered from 788 publicly listed
companies in China. Multivariate regression analysis concludes that guanxi, strategic leadership, and
social relationship has a positive significant effect on innovation in technologies. Guanxi allows
enterprises to get necessary information regarding development opportunities. The study also reveals
that increase in the degree of nationalization results in better the effect of entrepreneurial abilities
(guanxi, strategic leadership, and social relationship) on technological innovation.

Feng et al., (2016) examine the mediating role of integration in supply chain for operational
performance and guanxi. The purpose of the study is to find out the association among supply chain
integration, guanxi, operational performance, also the mediating role of SCI among guanxi and
performance. Researchers use guanxi as an independent variable, supply chain integrations as
mediator and operational performance as a dependent variable. Since the study is quantitative in
nature, data was gathered from automobile manufacturers of chine by using random sampling method
126 responses were collected. For data analysis purpose, researchers apply exploratory and
confirmatory factor analysis to determine the non-response bias and common method bias.

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Further, the paper applies the ordinary least square (OLS) regression to test the hypotheses proposed
within the study. Findings of the paper reveal a significant positive association between guanxi and
SCI, SCI is significantly related to operational performance. Further, it is concluded that guanxi
indirectly affects operational performance through SCI.

Conceptual Model

RESEARCH METHODOLOGY
The aim of this analysis is to explain the effects of supply chain management practices including
strategic supplier relationship, customer relationship, information sharing, information quality,
internal operations on the technological innovation of restaurant industry of Karachi Pakistan along
with the mediating role of Guanxi. The nature of this study is quantitative. Survey is conducted to
collect the data with the help of questionnaire as an instrument which is converted to numerical form
for further data analysis. This study is correlational in nature. Which comprehend the connection
between the variables and understand the relationship between the variable whether that is significant
or insignificant, positive or negative? Moreover, the strength of variables whether strong and weak
has been observed.

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The true representation of the population is determined by the sampling technique. This paper used
the non-probability sampling technique for the collection of data for data collection. Non-probability
sampling is selected due to its subtype of a snowball sampling method. The snowball sampling is
further divided into a linear snowball, exponential non-discriminative and exponential discriminative
snowball. Exponential discriminative snowball was used because the chain referral process allows
reaching the target population that is difficult to reach. This technique is selected because this is
continent, fast and inexpensive. To determine the effects of SCM practices on technological innovation
in the restaurant industry of Karachi; Pakistan, the targeted population of study are the supply chain
managers and owners of different restaurants of Karachi. To find out the effect of SCM practices on
technological innovation, we used quantitative survey and the study was conducted with sample size
of 232 respondents who were selected through non probability snow ball sampling (Bian, Xuemei;
Mountinho, Luiz, 2011) to collect data from supply chain managers and owners of the restaurants of
Karachi, Pakistan. Results are given based on the questionnaires filled by 232 respondents. Data
analysis (Comrey & Lee, 1992) suggest that the sample size of 500 as poor, between 200 till 300 as a
good sample, 500 as very good and 1000 as excellent sample, so this sample size is considered as the
good data for analysis.

Statistical Techniques:

To estimate both the measurement model and structural model we used SEM (structural equation
model) in SmartPLS 3.1.6 (Ringle, Wende & Becker, 2014) as a statistical tool in this research. PLS-
SEM is suitable for examining the multiplex models (Hair, Ringle, & Sarstedt, 2011; Henseler et al,
2014). The competency of the model was examined by the convergent and discriminant validity.
Further analysis was performed by booth stepping and blindfolding.

Measurement Instrument:

The measurement instrument consists of 43 items, which fulfill the minimum questionnaire
requirement stated through (Hair, Black, Babin, Anderson & Tatham, 2006). The independent variable
supply chain practices which include 6 items of SSP, items of CR, 6 items of IS, 5 items of IQ, 7 items
of IOP are taken from (Li et al., 2005; Petrovic-Lazarevic et al., 2007). There are four items of guanxi
taken from (Cheng et al., 2012; Luo et al., 2014) whereas TI comprises of 5 items of product innovation
and 4 items of process innovation are adopted from (Prajogo & Sohal, 2003; Singh & Smith, 2004).
A 5 point Likert scale ranging from 1 till 5, 1 “Strongly Disagree”, 2 “Disagree”, 3 “Neutral”, 4”
Agree” and 5 “Strongly Agree” was used to measure. Moreover, demographic data was also collected
from the respondents.

Ethical Consideration:

The required data is purposefully gathered from the respondents through a survey. Secrecy of personal
information of respondents was the prime objective and the collected data was entirely used for
research study.

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DATA ANALYSIS
Demographics:

The demographic profile of respondents is represented in Table 4.1. The demographic profile shows
the age of restaurant and the type of food offered by 232 restaurants of Karachi, Pakistan. 87 (37.50%)
restaurants aged less than 3 years, whereas 99(42.67%) had an experience of 3 to 6 years, while 27
(11.64 %) restaurants aged between 6.1 to 9 years,11(4.74%) restaurants were 9.1 to 12 year old,
4(1.72%) restaurants were 12.1 to years old, only 4(1.72%) have been operating in this industry since
more than 15 years. When it comes to the type of food offered 81 (34.91 %) restaurants offered fast
food, 17 (7.33%) restaurants offered Chinese food, 20 (8.62%) restaurants offered Italian and seafood;
while 48(20.69%) restaurants offered desi food items and the remaining 27(11.64%) restaurants
offered other food items like Turkish food, ice creams, desserts, and confectionary items.

Table 4.1
Demographics Profile

Demographics Frequency Percentile

Age Of Restaurant
Less than 3 years 87 37.50%
3 to 6 years 99 42.67%
6.1 to 9 years 27 11.64%
9.1 to 12 years 11 4.74%
12.1 to 15 years 4 1.72%
More than 15 years 4 1.72%

Type of Food

Offered
Fast Food 81 34.91%
Chinese 17 7.33%
Italian 20 8.62%
Sea Food 20 8.62%
Desi 48 20.69%
Arabic 19 8.19%
Others 27 11.64%
Model Measurement

Convergent Validity

To know the validity and reliability of the model, variables were passed by different tests described
by Hair, Ringle and Sarstedt (2011). Table 4.2 exibits the values of the reliability and validity of the
model, each component in reliability and validity table must be greater than 0.5 (Hair. Ringle &
Sarstedt, 2013).Foremost reliability of the model was tested by composite reliability, which should be
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more than 0.7 (Gerbing & Anderson, 1988; Das et al., 2011; Hair et al., 2011)Value of composite
reliability for customer relationship is 0.948, guanxi is 0.892, information quality is 0.893, information
sharing stands at 0.871, 0.913 is for internal operations, strategic supplier relationship is 0.872 and
technological innovation is 0.931. Composite reliability of all variables exceeds 0.7 which satisfies
the standards in the study of Hair et al, (2013). Further validity of the data was identified by convergent
validity was used which comprises two factors. The Average variance extracted and Cronbach Alpha.
The Cronbach Alpha should be greater than 0.7. All construct exceeds 0.7: CR (0.928), GX (0.839),
IQ (0.842), IS (0.779), IOP (0.889), SSP (0.828), TI (0.916). Similarly, AVE should be greater than
0.5. Values of analyzed model CR (0.821), GX (0.675), IQ (0.676), IS (0.692), IOP (0.601), SSP
(0.632), TI (0.630) were greater than 0.5 that indicates the validity of the model ( Fornell & Larcker,
1981) .

Table 4.2
Construct Reliability and Validity

Cronbach's Composite Average Variance Extracted

Alpha Reliability (AVE)
Customer Relationship (CR) 0.928 0.948 0.821
Guanxi (GX) 0.839 0.892 0.675
Information Quality (IQ) 0.842 0.893 0.676
Information Sharing (IS) 0.779 0.871 0.692
Internal Operations (IOP) 0.889 0.913 0.601
Strategic Supplier Partnership
0.828 0.872 0.632
(SSP)
Technological Innovation (TI) 0.916 0.931 0.630

Discriminant Validity

The concept of discriminate validity is introduced by (Campbell & Fiske, 1959), for evaluating test
validity. Discriminate validity includes Loadings and cross loadings, Correlational matrix and
Hetrotrait and Monotrait ratio of correlation. Discriminate validity is the point at which any variable
differs with another variable in the research model (Carmines and Zeller,1978). Fornell and Larker
(1981) suggested a test to measure the discriminant validity each pair of variables, the total value of
pair of their correlational should be smaller than the square root of AVE of item. Table 4.3 exhibits
that all the diagonal values are higher than the off-diagonal values which met the benchmark.
According to (Tabachnick, Fidell & Ullman, 2007; Raza & Hanif) the cutoff point is 0.5 for individual
loadings and all items excel this standard shown in table 4.4. The values of Heterotrait and Monotrait
ratio of correlations (HTMT) (Table 4.5) should not be more than 0.85 (Henseler et al, 2014) further,
the study of Henseler, Ringle and Sarstedt (2015) demonstrate that discriminate validity has been
established if the HTMT value is below 0.9. the results are similar with the work of Henseler, Ringle
and Sarstedt (2015) as all values are less than 0.9.

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Table 4.3
Fornell-Larcker Criterion

CR GX IQ IS IOP SSR TI
Customer Relationship (CR) 0.906
Guanxi (GX) 0.412 0.822
Information Quality (IQ) 0.115 0.238 0.822
Information Sharing (IS) 0.336 0.636 0.212 0.832
Internal Operations (IOP) 0.530 0.722 0.306 0.567 0.775
Strategic Supplier Partnership (SSP) 0.065 0.336 0.031 0.252 0.245 0.795
Technological Innovation (TI) 0.296 0.770 0.315 0.628 0.713 0.354 0.793

Table 4.4
Cross Loadings

CR GX IQ IS IOP SSP TI
CR1 0.919
CR2 0.884
CR3 0.919
CR5 0.902
GX1 0.869
GX2 0.755
GX3 0.860
GX4 0.798
IQ2 0.852
IQ3 0.781
IQ4 0.854
IQ5 0.799
IS2 0.836
IS4 0.780
IS6 0.877
IOP1 0.861
IOP2 0.755
IOP3 0.699
IOP4 0.739
IOP5 0.825
IOP6 0.789
IOP7 0.745
SSP1 0.797
SSP3 0.805
SSP5 0.723

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SSP6 0.848
TI1 0.735
TI2 0.824
TI3 0.736
TI4 0.830
TI5 0.799
TI6 0.776
TI7 0.773
TI8 0.865

Table 4.5
Heterotrait-Monotrait Ratio (HTMT)

CR GX IQ IS IOP SSR TI
Customer Relationship (CR)
Guanxi (GX) 0.458
Information Quality (IQ) 0.128 0.271
Information Sharing (IS) 0.375 0.779 0.248
Internal Operations (IOP) 0.584 0.818 0.341 0.650
Strategic Supplier Partnership (SSP) 0.129 0.316 0.109 0.272 0.229
Technological Innovation (TI) 0.313 0.870 0.348 0.724 0.761 0.351

Blind Folding

The predictive relevance of the endogenous variables was tested by blindfolding to obtain check cross-
validated redundancy of each construct suggested by Hair, Ringle, Sarstedt (2011). The benchmark
for Q square is that it must be greater than zero. Table 4.6 exhibits that both the values exceed zero
and it tells the fitness of the model has achieved.

Table 4.6
Construct Cross validated Redundancy

SSO SSE Q² (=1-SSE/SSO)

Customer Relationship (CR) 928.000 928.000
Guanxi (GX) 928.000 574.580 0.381
Information Quality (IQ) 928.000 928.000
Information Sharing (IS) 696.000 696.000
Internal Operations (IOP) 1,624.000 1,624.000
Strategic Supplier Partnership (SSP) 928.000 928.000
Technological Innovation (TI) 1,856.000 1,116.383 0.399

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Figure 2

Structural Model

This study is directed towards the structural model and hypothesis testing. The significance of P-value
is the basic criteria for hypothesis testing. If the hypothesis is accepted, the p-value should be < 0.5.
Table 4.7 exhibits the effect of SSP was found to be significant as the p-value is 0.015 less than 0.5.
The direction of effect was positive with the beta value of 0.101 which means that if 1 unit change
occurs in SSP, it will affect TI by 0.101 units. Further the result depicts customer relationship (β =
0.116; P = 0.007), information quality (β = 0.100; P = 0.015), information sharing (β= 0.170, P =) and
internal operations (β =0.317; P= 0.000) effects significantly and positively on technological
innovation. Thus, the hypothesis H1, H2, H3, H4, and H5 are accepted.

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Furthermore, the meditation was assessed to determine how guanxi intervene in the linkage among
SC practices and technological innovation. The mediation was assessed by the direct and indirect
effect. If direct and indirect both effects resulted significant, there will be partial mediation exists
among the variables SSP and TI, IS and TI, and IOP and TI met this criterion and found to be partially
mediated by guanxi. If an indirect effect is significant and direct is either significant or insignificant
there is no mediation exist among the variables like in CR and TI, IQ and TI.

Table 4.7
Path Coefficients

Hypothesis Path Impact Sample Mean P Value Remarks

H1 SSP -> TI Direct Impact 0.101 0.015 Accepted

H2 CR -> TI Direct Impact 0.116 0.007 Accepted

H3 IQ -> TI Direct Impact 0.100 0.015 Accepted

H4 IS-> TI Direct Impact 0.170 0.005 Accepted

H5 IOP -> TI Direct Impact 0.317 0.000 Accepted

H6a SSP -> GX -> TI Mediating Impact 0.061 0.005 Accepted

H6b CR -> GX -> TI Mediating Impact 0.016 0.550 Rejected
H6 H6c IQ -> GX -> TI Mediating Impact 0.011 0.592 Rejected
H6d IS -> GX -> TI Mediating Impact 0.130 0.000 Accepted
H6e IOP-> GX -> TI Mediating Impact 0.202 0.000 Accepted
Discussion

The study discussed the impact of SC practices on technological innovation focusing on the restaurant
industry of Karachi, Pakistan. Furthermore, the research also depicts the role of Guanxi as a moderator
among practices of supply chain and technological innovation. The result indicates that partnership
with strategic suppliers, relationship with customers, quality of information and sharing of information
and internal operations have a significant positive effect on technological innovation. Moreover,
guanxi shows full mediation between SSP and TI, IS and TI, and IOP and TI. However, there is no
mediation exist among CR and TI, and IQ and TI.

The strategic supplier partnership effect significantly on technological innovation. Our results concur
with (Lee et al., 2018; Cao & Zhang, 2011; Peterson et al., 2005) that integration with suppliers is the
essential component for technological advancement including new product development and
improvement in the process. SC managers consider their key suppliers in the planning process, during
the process of developing a new product and improvement programs as it gives them positive
outcomes. Long term relationships must be considered by managers while choosing their key suppliers
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which enable firms to solve the routine issue rapidly and jointly, helps firms in product innovation and
process development by flexibility in their offerings.

Likewise, the effect of customer relationship on technological innovation was found to be significant.
The result was significant with past researches by (Li et al., 2005; Bayraktar et al., 2009; Frohlich &
Westbrook, 2002). Customer relationship is equally significant as strategic supplier relationship in
doing business. The goal of supply chain is to give better value to customers, customer’s feedback
means a lot to the organizations. Organizations must gather information about customer requirements
that promote product development. A strong relationship with customers improves the firm's
efficiency, agility, service quality. Restaurants with strong customer relationships can incorporate
innovation in their products and processes and take advantage of the market. Additionally, information
sharing was significantly linked with TI. In parallel with the study of Huang et al. (2003), Cheng
(2011), Pereira (2009) and Zhou and Benton (2007) coordination can improve product quality, better
decisions would be taken on forecasting, procuring, and order if information sharing is efficient among
manufacturer and supplier. Eatery managers consider that they can perform better by sharing complete
information with employees and SC partners. The more the dependency between the members of the
firm, the less the dysfunctional conflicts, as well as level of understanding and sharing of information,
developing bonds between partners and they work for the same interest together.

Further, Information quality has a notable impact on technological innovation of the restaurant
industry of Karachi, Pakistan. This finding is compatible with the findings of (Lee et al., 2018; Sellitto
et al., 2007). Accuracy of the information is essential need of firms. The form of information quality
includes availability, accessibility, accuracy, relevance, timeliness. The firms that practice these
qualities of information can lead the businesses towards success. Quality management motivates
employees and results in betterment in product and process innovation. It is concluded that stronger
the information quality, improves the coordination among subordinates, increase the possibility of
businesses to be more innovative and creative. Practically, internal operations are the key indicator of
supply chain practices for affecting technological innovation. The outcomes are on par with the
conclusions of (Lee et al., 2018; Perry & Sohal , 2000; Elmuti, 2002) that it is important for the firms
to incorporate the internal operations effectively with the external functions to increase the
competitiveness and efficiency. Integration in internal operation effect significantly on the
innovativeness of the firm as the level of production is up to the mark so the internal functional flow
of logistics for the end product is adequate; the continuous improvement in production system takes
place, such operations encourage the TI of organization.

Guanxi affect positively and significantly on technological innovation in restaurant industry this is
similar with the past researches (Park & Luo, 2011; Abramson & Ai, 1999; Lee et al., 2001; Fan, 2002;
Lobo et al., 2013; Murray and Fu, 2016) shows close association with business partners provide an
security against any unfavorable situation in business, improves financial as well as market
performance, and contribute to business growth.

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Moreover, it comes to the mediating effect of guanxi among supply chain practices and technological
innovation. Guanxi has full mediation with supply chain practices comprising of strategic supplier
relationship, information sharing, and internal operations whereas no mediation exists among
customer relationship and technological innovation, information quality and technological innovation.
The synchronized finding from preceding literatures (Park & Luo, 2011; Feng & Wang, 2013; Wong
et al, 1999; Lee & Humphreys, 2007; Cheng et al., 2012) reveals that these types of relations with
supply chain partners are crucial for businesses in the long run, attending as a base for process
development and product innovation. Guanxi with top suppliers can influence the way of processes
like fair negotiations at ends, commitments, managing conflicts, and adequate communication. Such
communications improve the level of combine planning and problem solving, which facilitate
development of new product and advancement in technology and improving the speed towards the
market.

CONCLUSION AND RECOMMENDATION

The intention of this study is to find out the effect of supply chain practices on technological innovation
of restaurant industry of Karachi, Pakistan. Along with the role of mediator that is guanxi. The target
area of the study is the owners and managers of the eateries mainly from Karachi. This study uses a
questionnaire based on five-point Likert scale which was filled by people who own a restaurant or
managing anyone’s else food business. Further, this research used some supply chain practices
including strategic supplier relationship, customer relationship, information quality, information
sharing, and internal operations as an independent variable. Technological innovation includes product
innovation and process innovation was used as dependent variable while guanxi used as a mediator.
232 was the sample size. The model was examined by Smart PLS.

Results of the present reveal that strategic supplier partnership, customer relationship, and information
quality, information sharing and internal operations effect significantly on the technological
innovation in the restaurant industry. When it comes to the mediating role of Guanxi, it partially
mediates the effect of SSP, IS and IOP on technological innovation, conversely there is no mediating
impact of guanxi on customer relationship and technological innovation and information quality on
TI. However, strong guanxi or close ties have proven that inter-organizational trust between strategic
partners is present. It is a source the sustainability of business setup, consequently an imperative
compound for the development of new product and process.

Managerial Implication

This study is fruitful for managers, owners, and supply chain practitioners of the restaurant industry.
Managers must have to maintain a strong relationship with the key suppliers, which will improve
negotiation, procurement process and solve conflicts among them and result in product innovation and
process innovation. Managers also must give value to customers, consider their feedback positively,
and improve product and service efficiently and timely. Moreover, managers can work on information
quality and sharing by encouraging open-minded discussions on the opposite and different points of

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view. Although internal operations can be improved if they work on lean practices. Guanxi with chief
suppliers was marked down as the most important determining factor in reaching to the higher
Technological innovation. This study also helps businesses to get insight from supply chain practices
at the time of product and process development.

Future Recommendation

There are some points which will be useful for future researchers which were not achieved in this
study because of time boundaries and limited resources. Firstly, the sample data was collected only
from Karachi, future researchers can work in other cities of Pakistan as well as in different countries
and cross countries. Secondly the researcher used only five SCM practices, in future researchers can
take extend this by adding more supply chain practices. Further researchers can work in different
industries like textile sector, manufacturing sector, automobile sector as this study only focused on the
restaurant industry.

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