While agency problems inevitably exist in buyer-supplier relationships, the focus on how to overcome such problems has been confined to the buyer-supplier dyad as if the dyad exists in isolation. In this dissertation, I re-frame the agency problems beyond the dyadic relationship between a buyer and its supplier and suggest a new way to overcome agency problems. While the current Agency Theory suggests that the buyer can monitor and provide incentives to mitigate the agency problems, I propose to look beyond the dyad in addressing buyer-supplier agency problems.
In the first chapter, I examine the impact of the “indirect links” in which the buyer is connected to the supplier through a third actor. I propose a conceptual framework that specifies how the indirect links can overcome agency problems through the effects of information exchange, mutual monitoring, power change, and network governance. These different effects are enabled by the indirect links based on the different network positions and levels of connectivity of the third actor. The first chapter provides a theoretical framework for Chapter 2 and 3.
In Chapter 2, the effect of network governance enabled by the indirect links is investigated. In particular, two scenario-based role-play experiments were conducted with managers to examine the effects of dyadic and network governance mechanisms on supplier opportunism. In Study 1, the participants took the perspective of a supplier, while in Study 2, the participants took the role of a buyer. The results show that network governance mechanism reduces the supplier's opportunistic behavioral intentions directly and indirectly through the negative affection prediction, and while suppliers may overlook the buyer's reactions as they make decisions, the buyers are likely to react against the supplier, such as engage in negative word-of-mouth or reduce level of commitment.
Finally, directed sourcing, a direct application of how a buyer could overcome agency problems beyond the dyad, is examined in Chapter 3. Directed sourcing is an emerging sourcing practice in which the buying firms bypass the top-tier suppliers and directly manage or contract with lower-tier suppliers, and research on this new practice is in its infancy. Therefore, multi-tier multi-task principal-agent models are developed to investigate the effect of directed sourcing practice on each member in this three-tier supply chain, comparing with traditional tiered sourcing. The results show that directed sourcing generally benefits the original equipment manufacturer (OEM) and the lower-tier supplier, while it harms the top-tier supplier. Yet, directed sourcing is not always beneficial to the OEM. Therefore, an OEM should be selective in implementing this new strategy.