Supplier Alliances and Environmental Uncertainty: An Empirical Study

Although supplier alliances are widely considered as an effective source of competitive advantage by firms operating in uncertain business environments, the literature offers inconsistent suggestions concerning how environmental uncertainty affects supplier alliances. The framework of transaction cost economics (TCE) suggests that, when environmental uncertainty is present to a nontrivial but not very high level, increases in environmental uncertainty lead to higher adoption levels of supplier alliances in order to reduce the likelihood of adaptation and evaluation problems on the part of suppliers. Some researchers from the perspective of strategic management, however, assert that firms should avoid close supplier relationships in uncertain environments so as to obtain flexibility in switching suppliers. In this research, we argue that such contradictory suggestions are partly due to the multi-dimensional nature of environmental uncertainty. With the empirical data from 175 Hong Kong electronics manufacturers, we found that two of the major dimensions of environmental uncertainty-technology change and market uncertainty-influence the adoption of supplier alliances and several related constructs very differently. Technology change has positive effects on strategic purchasing, specific investments and supplier alliances. Market uncertainty, nonetheless, provides an unfavourable environment for specific investments and does not lead to supplier alliances. Reporting findings of interest and significance, this paper provides theoretical and practical insights for strategic supply management.