The effect of LTO culture on international supply chain contracts

Abstract

Effective management of international supply chain relationships is critical in determining the success of the ever-growing cadré of international businesses where small cost differentials separate profitable enterprises from failed ones. Because inter-organizational contractual arrangements define expectations and standards for supply chain transactions, they may play a role in determining relationship efficiencies (and thus costs.) Although the effect of culture on the functioning of interfirm relationships in the supply chain has been an active area of scholarly investigation in the past decade, most studies have focused on organizations in Western societies, particularly in the US and Europe. Increasingly, global supply chains include at least one Asian partner so that cultural patterns predominant in the East must also be considered. This study examines the cultural factor of time orientation and seeks to understand how the long-term orientation (LTO) characterizing many Eastern cultures may affect supply chain contracts. Specifically, it investigates the influence of cultural time-orientation on the formation of soft (implicit, general) and hard (written, detailed) contracts. The results underscore the importance of culture in managing effective interfirm relationships in the supply chain: Long-term orientation culture tends to rely upon and function successfully with soft contracts, but does not depends on hard contracts.