effective distributor governance in

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Amajor challenge for firms aiming to capitalize ontheir market potential in a host country involvesthe effective management of their distributors

(Anderson and Coughlan 1987; Zhang, Cavusgil, andRoath 2003). This can be accomplished by designingeffective governance strategies (Heide 1994) that simul-taneously motivate and control various types of dis-tributors (Griffith and Myers 2005). This challenge is

particularly salient in an emerging market such as China(Griffith and Myers 2005; Walters and Samiee 2003),with its scattered and evolving distribution systemdriven by continuous reforms in its social and economicinstitutions (Hoskisson et al. 2000; Park, Li, and Tse2006). Extant literature has conceptualized two majortypes of governance strategieseconomic and relationalbasedthat are known to enhance distributor perform-ance in developed economies effectively (Jap and Ander-son 2003; Murry and Heide 1998; Wathne and Heide

2000). The unanswered question is this: Would thesegovernance strategies be effective in markets that havedistinctively different business cultures?

Effective Distributor Governance inEmerging Markets: The Salience of

Distributor Role, Relationship Stages,and Market Uncertainty

Maggie Chuoyan Dong, David K. Tse, and Kineta Hung

ABSTRACT

Effective governance of distributors represents a critical success factor for firms operating in emerging markets such as

China. To increase understanding of this issue, the authors adopt a role theory framework to delineate the effect of fit

between governance strategies and distributor role orientations on channel outcomes. They also examine the way two

contingency factors (relationship stages and market uncertainty) may moderate the impact of this fit. Using a four-

industry survey of distributors in China, the authors confirm the salience of strategic fit between the manufacturers

governance strategy and the distributors role orientation (in short, governance fit), in support of propositions postu-

lated in recent channel governance research. The findings also indicate that the effects of this governance fit are depend-

ent on the stages of the channel relationship (buildup versus mature) but not market uncertainty. This study extends the

current literature and suggests the need for finer, phase-oriented dynamic governance strategies in the Chinese market.

Keywords: role theory, channel management, governance strategy, Chinese market

Journal of International Marketing

2010, American Marketing Association

Vol. 18, No. 3, 2010, pp. 117

ISSN 1069-0031X (print) 1547-7215 (electronic)

Effective Distributor Governance in Emerging Markets 1

Maggie Chuoyan Dong is an assistant professor, Departmentof Marketing, City University of Hong Kong (e-mail:[email protected]).

David K. Tse is Chair Professor of International Marketing,School of Business, The University of Hong Kong (e-mail:[email protected]).

Kineta Hung is an associate professor, Department ofCommunications Studies, Hong Kong Baptist University(e-mail: [email protected]).


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2 Journal of International Marketing

Studies have unfolded the issue of fit or alignmentbetween suppliers and distributors as a boundary condi-tion in which economic- and relational-based gover-nance strategies work. John (1984) points out that wheninterfirm attitudinal orientation is not aligned, somegovernance mechanisms (e.g., monitoring, hierarchicalcontrol) promote rather than reduce distributorsopportunistic behavior. Griffith and Myers (2005) showthat when a firms governance mechanism fits the cul-tural norms of the host country, channel performanceimproves.

In a recent study, Heide and Wathne (2006) unfold thecentrality of interfirm fit by applying role theory tomanaging manufacturerdistributor relationships. Theypropose that most distributors assume two types of rolesin their channel relationship: (1) the business role, forwhich firm behaviors reflect utility maximization andself-interests, and (2) the friend role, in which context

firms follow the rules and understanding typical offriends (Montgomery 1998). They postulate that themanufacturers governance strategies must strategi-cally fit the role orientation of their distributors to beeffective (Grayson 2007; Heide and Wathne 2006).When the manufacturers governance strategies fit thedistributors roles, positive channel outcomes, such asincreased collaboration, greater relationship satisfac-tion, and better exchange performance, should result. Incontrast, a misfit between governance mechanisms androle orientations leads to resource waste, opportunitycosts, and even distributor retaliatory actions (Heide

and Wathne 2006). The relational role postulate is sup-ported by economic sociology, in line with Marchs(1994) notion of decision logics.

The governance fit proposition is consistent with Zajac,Kraatz, and Bressears (2000) contingency perspective inthat a firms actions must align with organizational con-tingencies such as its value or logics. It also recognizesthe centrality of diversified organization norms andheuristics when doing business in a society undergoingeconomic and cultural transitions (Ralston et al. 1999).However, despite its theoretical strength, this proposi-

tion has not been validated empirically.

Governance fit in channel management is of particularrelevance to emerging economies because their marketsare complex and unstructured (Hung, Gu, and Yim2007), thus generating distributors with different roleorientations (Lenartowicz and Balasubramanian 2009).Furthermore, the collectivist cultural background inmany emerging economies, such as China and India,

gives rise to distributors that are relationally skewed(Gu, Hung, and Tse 2008).

China, an exemplary emerging economy, has undergonemajor economic and firm transitions. The networks andconnections previously thought to be imperative forbusiness success no longer seem as important becausemarket reforms have helped develop efficient businessinfrastructures (Peng 2003). An increasing number ofdistributors now focus on the business itself rather thanthe relationship between channel partners (Dong, Tse,and Cavusgil 2008). Because of the diversity of distribu-tors, manufacturers should tailor channel governancestrategies to fit their distributors role orientations.

In an emerging market economy characterized by con-tinuous changes, manufacturers need to approach theissue of governance fit dynamically (Zajac, Kraatz, andBressear 2000). In high-growth markets, manufacturers

often must expand their market coverage and recruit anincreasing number of distributors (Walters and Samiee2003). The new distributors, though eager, are inexperi-enced. They tend to have mixed motives driven by theirsimultaneous needs of survival and growth (EconomistIntelligence Unit 2004). In contrast, mature distributorsmay have developed a diversity of motives to distribu-torship (e.g., profit maximization) that are in line withtheir respective business models and market positions.The diversity of motives and role orientations across dif-ferent types of distributors renders channel governancea challenge. Any attempt to manage them with a uni-

form and standardized governance policy may be unre-alistic (Gu et al. 2010).

As the world economy experiences overlapping spheresof global demand shifts, market uncertainty is becominga central issue in firm strategies (Hoskisson et al. 2000).Previous studies have confirmed the salience of marketuncertainty on organizational change (Lau, Tse, andZhou 2002), resource acquisition (Makino, Lau, andYeh 2002), product innovation (Zhou, Tse, and Li2006), and other firm strategies. Yet the following ques-tions remain: Should channel governance be continu-

ously revised in high-growth markets? and Would theissue of governance fit be more prominent in highlyuncertain market environments?

This study examines the salience of strategic fit betweensuppliers governance mechanisms and distributors roleorientation (in short, governance fit) in emergingeconomies. Using a survey of distributors across fourindustries in China, this study pursues three objectives.


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First, by integrating insights from governance perspec-tive and role theory, we provide an initial validation ofthe issue of governance fit in China. Second, we delin-eate and assess the issue of governance fit in new andestablished distributors as firms build their distributionnetworks in this emerging market. Third, the studyassesses the moderating effects of market uncertainty ongovernance fit, which enables managers to gauge theirneed for dynamic channel governance strategies. In sum-mary, we attempt to provide insights into three mainquestions: (1) Does strategic fit in governance strategymatter in an emerging market such as China? (2) Canstrategic fit be universally applied to building and main-taining channel relationships? and (3) In a market char-acterized by constant change, does market uncertaintydemand a governance strategy that is equally dynamic?

We chose China as the research context for two reasons.First, it has become the worlds largest emerging market.

As an economy that has been growing by 10% ormore annually, the China market is highly dynamic(Atuahene-Gima and Li 2002), providing an appropri-ate platform to examine the sustainability of channelgovernance fit in high-growth and uncertain marketenvironments. Second, similar to other collectivist cul-tures, the Chinese value system emphasizes interper-sonal and social harmony (Bond 1996; Yang 1994).This may skew some distributors to assume a friend roleorientation in their operation. Yet, challenged by intensecompetition and market dynamics (Li, Poppo, and Zhou2008), distributors may be increasingly forced to

assume a business role in their operations. These oppos-ing forces generate a conflicting context that enables usto investigate the salience of strategic fit between suppli-ers governance and distributors role orientations indetail.

CONCEPTUAL FRAMEWORK AND

HYPOTHESES

Governance Mechanisms and Channel

Outcomes

Governance has been the pivotal issue in managing mar-keting channels (Stern, El-Ansary, and Brown 1989).This perspective (Williamson 1999) has embraced a widespectrum of strategies, ranging from market structurebased approaches such as coercive influences, marketdependency (Frazier 1983), and relational norms (Heide1994; Zhang, Cavusgil, and Roath 2003) to formalstrategies such as monitoring and incentive systems (Jap

and Ganesan 2000). These governance strategies aredesigned to suppress partner firms opportunistic behav-iors and promote desired behaviors. They draw insightsfrom the transaction cost approach (e.g., Hill 1990;Williamson 1981) and social exchange theory (Lambe,Wittman, and Spekman 2001) to delineate governancesnature, the underlying processes, and the effectiveness ofthese strategies. Among them, economic- and relational-based mechanisms emerge as the two most influentialtypes of governance.

Economic governance strategies regard firms in a chan-nel as rational economic units that follow the rule ofutility maximization (Jap and Anderson 2003). Drivenby self-interest-seeking motives, agents give way toopportunism (Williamson 1981, 1985). This mixedmotive generates a steady stream of research pertainingto the types and effectiveness of various economicgovernance mechanisms. They include incentive designs

and monitoring systems that enable firms to promotedesired channel behaviors using economic rewards orpunishments and to suppress opportunistic behaviors.As Heide and Wathne (2006) propose, we operationalizeincentive designs as representative of economic gover-nance strategies.

Relational governance strategies represent strategies thatfocus on sociorelational norms and motivations. Socialexchange theory (Lambe, Wittman, and Spekman 2001)and relational contracting theory (Macneil 1980)advocate that enduring, collaborative exchanges are

established and maintained by social norms (Zhang,Cavusgil, and Roath 2003) in addition to economicmeans. Relational strategies represent an endogenousmechanism that enhances exchange performance byembedding private and public information flows into amatrix of social ties, instead of resorting to contractsor third-party enforcement (Uzzi 1999). We chosesocialization efforts to represent relational governancestrategies. Note that both types of governance strategiescomplement each other and can appear simultaneouslyin marketing channels (Heide and Wathne 2006; Jap andGanesan 2000).

The key to effective channel governance is to designmechanisms that successfully enhance the firms own per-formance as well as motivate distributors to cooperateand stabilize channel relationships (March 1994). Whendistributors are satisfied with their relationship with themanufacturer, they are willing to assume long-term chan-nel commitment, and superior channel performance isensured.


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Figure 1 displays our proposed framework of the waychannel governance fit affects channel outcome. Wepostulate that the fit between the two types of gover-nance strategies (economic and normative) and the twodistributor role orientations (business and friend) leadsto positive channel outcomes. The figure also indicatesthe moderation effects of the channel relationship stageand market uncertainty. We adopted channel perform-ance and satisfaction as the two channel outcome con-structs. Channel performance is a short-term outcomethat captures the manufacturers performance gainedthrough association with a certain distributor (Jap andAnderson 2003). Channel satisfaction is a long-termevaluation that reflects a summary appraisal of allaspects of a distributors working relationship with thesupplier firm (Anderson and Narus 1984). In the follow-ing sections, we discuss the framework constructs andtheir respective effects.

Distributor Role Orientation: Economic and

Normative

Role theory postulates that in social exchanges, onepartys perception of its role defines what it expects

from, how much it invests in, and how it evaluates therelationship (Biddle 1986). Among several differentapproaches to role theory, two branchesfunctional(e.g., Bates and Harvey 1975; Parsons 1937) andstructural (e.g., Burt 1982; Winship and Mandel1983)have historically enjoyed prominence andreceived attention in the marketing literature. A func-tional role refers to the contribution a party makes tothe exchange, which in turn defines its obligations andresponsibilities. A structural role refers to a partysstructural position in the exchangethat is, the rela-tive position of how the party perceives itself, includingits social status and identity. To date, these two roleapproaches have not been extensively applied in inter-firm relationship research.

Recently, marketing scholars have applied role theoryto the channel context (e.g., Grayson 2007; Heideand Wathne 2006). Heide and Wathne (2006) elucidate

that distributors perceptions of their responsibility,expectations of their supplier firms, and evaluations oftheir relationship with suppliers are critically connectedwith how they perceive their own functional and struc-tural roles. Using role theory, they identify two distinct


Figure 1. Framework of Governance Fit and Channel Outcome

Governance Strategies

Economic (incentive)

Normative (socialization)

Channel

Performance

Channel

Satisfaction

Market

Uncertainty

Distributors Role Orientations

Economic role (businessperson)

Normative role (friend)

Stage of Channel

Relationship

Governance FitChannel Outcome


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relational roles in channel relationships: as a business-person and as a friend (El-Ansary and Stern 1972;Grayson 2007; Heide and Wathne 2006). Althoughthe two roles coexist and are interchangeable, one roleis likely to dominate the exchange relationship withina specific time frame. When a distributor holds aparticular relational role, a corresponding set of behav-ioral norms, or logics, including the logic of conse-quences and the logic of appropriateness, guides itsbehavior (March 1994).

The logic of appropriateness describes a rule-drivendecision-making mode, and the logic of consequencesrefers to decision-making processes in utility maximiza-tion (March 1994). We label the prototypical relation-ship role that corresponds to the logic of consequencean economic role (labeled a businessperson role inHeide and Wathne [2006] and Grayson [2007]). Weconsider this term more appropriate because it focuses

on profit maximization in the channel relationship. Weuse the term normative role to label the role guidedby the logic of appropriateness because it drives norma-tive behaviors that regard the relationship partner as afriend (Dwyer, Schurr, and Oh 1987; Heide and Wathne2006).

When a distributor attributes its primary role to that ofa businessperson in the economic world, its actionswould follow the logic of consequences (Heide andWathne 2006; March 1994). When its primary motiva-tion is utility maximization, its actions would aim to

maximize or optimize its own interests and preferences(Risse 2000). In the terminology of game theory (Axel-rod 1984), a businessperson plays the game by choosingthe strategy (cooperation or defection) that maximizesindividual payoffs. A businessperson is motivated topursue opportunistic behaviors (e.g., quality shirking) atthe expense of a partner if the gains are substantial(Klein 1996). As expected, behaviors that follow theeconomic role may not necessarily lead to favorable eco-nomic performance. Yet, if a distributor adopts an eco-nomic role, it will be more responsive to economic gov-ernance strategies.

In contrast, when a distributor assumes a normative rolein the exchange relationship, the logic of appropriate-ness applies (March 1994). Accordingly, the distributoraims to form normative ties and operates through theinterpretive lens of social norms (Chiles and McMackin1996). Such social norms subsequently lead to sharedexpectations among parties across different levels,including the broader society (Gouldner 1960), regional

and local cultures, ethnic or religious sectors, industrysectors (e.g., standard business practices, trade associa-tions), and professional and occupational sectors(Zucker 1986). This implies that distributors operatingwith normative roles are more receptive to socializationstrategies in generating desirable channel outcomes(Heide and Wathne 2006). The current study extendsthese fundamental postulates by going beyond the maineffects of governance strategies and distributor roles toassess the effects when the two constructs are strategi-cally fit or misfit.

Governance Fit and Misfit

What happens when a supplier adopts a governancemechanism that does not match the distributors roleexpectationsthat is, when a supplier uses normativemechanisms on a distributor that assumes an economicrole or uses economic mechanisms on a distributor that

assumes a normative role? Although no studies havereported on this topic, we can nevertheless deriveinsights from the literature. Strategic fit refers to thedegree to which the needs, demands, goals, objectives,and/or structures of one component of the strategy isconsistent with the needs, demands, goals, objectives,and/or structures of another component (Nadler andTushman 1980, p. 36). In our study context, it refers tothe consistency between governance and context (dis-tributor role orientations). Miles and Snow (1994) andDay (1999) both postulate that strategic misfit dampensfirm performance and needs to be avoided. We use the

term governance fit to refer explicitly to the extent towhich the suppliers governance mechanism fits the dis-tributors role expectations.

In the governance fit conditions, the economic gover-nance mechanism is deployed to economic role distribu-tors and the normative governance mechanism to nor-mative role distributors, so that the distributors receivewhat they expect. According to information signalingtheory (Feldman and March 1981), the suppliers gover-nance fit behaviors should be well understood, withoutguesswork or misinterpretation. Actions are predictable,

reduce uncertainty, and establish a cooperative plat-form. Mutual trust grows stronger, thus enhancing sat-isfaction with the exchange relationship, which in turnpromises improved governance efficiency and channelperformance.

In contrast, when governance misfit occurs, distributorsare puzzled and confused about the suppliers actionsand their underlying meanings. For example, if offered


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higher extrinsic rewards, normative role distributorsmay question and doubt the future of their relationship.To these distributors, friendly cooperative actions offergreater security than explicit incentives (Chiles andMcMackin 1996). A misfit strategy also provides astrong impetus to attribute causality to the suppliersseemingly incomprehensible actions (Raven andKruglanski 1970). Mutual trust will likely decline, aswill channel performance.

Similar sequences of negative events may follow when asupplier deploys normative governance strategies to dis-tributors that assume economic roles. To these distribu-tors, the suppliers socialization efforts appear to beeconomically wasteful (Heide and Wathne 2006). Thegrowing misunderstanding generates negative affect inthe exchange relationship and, at times, may lead toopportunistic behaviors and other destructive actions.

Challenged by their limited resources, supplier firmsmust allocate effectively to optimize channel perform-ance and long-term relational outcomes (Rindfleischand Heide 1997). Although both economic and norma-tive governance mechanisms can be effective, the coretask is not to choose between them but to choose a gov-ernance mechanism that fits (Heide and Wathne 2006).Our central tenet states that governance fit and misfitexert significant influence on channel outcomes. Inshort, we hypothesize the following:

H1: The greater the governance fit, the greater

are the channel performance and channelsatisfaction: (a) A distributors economic rolestrengthens the effects of the manufacturerseconomic governance (incentives) on channelperformance and channel satisfaction, and (b)a distributors normative role strengthens theeffects of the manufacturers normative gover-nance (socialization) on channel performanceand channel satisfaction.

H2: The greater the governance misfit, the lesserare the channel performance and channel sat-

isfaction: (a) A distributors normative roleweakens the effects of the manufacturers eco-nomic governance (incentives) on channel per-formance and channel satisfaction, and (b) adistributors economic role weakens the effectsof the manufacturers normative governance(socialization) on channel performance andchannel satisfaction.

Governance Fit (Misfit) and Stages of ChannelRelationship

To ensure sustainable success in a host market, firmsneed to establish an effective distributor network. In anemerging economy such as China, this challenge has ledmany multinational firms to adopt unconventionalmethods to develop distributors and expand their mar-ket coverage. For example, during 19951997, Procter& Gamble set up more than 100 teams that venturedout, like Indiana Jones, to many of Chinas third-tier cityand village markets to develop its multilayer cityvillagedistribution network. In 1998, when China banned allforms of direct marketing, Avon was forced to turn itsdirect marketing agents into 6000 licensed distributors.This forced change benefited Avon in the end; it nowenjoys a well-known brand name with an efficient andmotivated distributor network throughout China.

Governance strategies need to change as new distribu-tors grow into established networks. As Dwyer, Schurr,and Oh (1987) and Jap and Ganesan (2000) show, dis-tributors at various phases of development differ in theirorientations, management processes, and behaviors.Heide and John (1992) also note that the effectivenessof governance mechanisms depends on the particularphase to which the distributors belong. During thebuildup stage, distributors focus on their survival needsand are eager to set up long-term relationships with thesupplier. Their relationship roles are relatively new,implicit, and equivocal (Dwyer, Schurr, and Oh 1987).

Accompanied by interdistributor competition forregional coverage and trade volume discounts, they arereceptive to both economic and normative governancemechanisms. Because of these varying motives, we positthat the effects of governance fit are weaker during thebuildup stage of channel development.

As the distributorship matures, the relationship roles arediscussed, revised, and formally adopted. Implicit rulestake form and may even override the terms in formalcontracts. The distributor also settles into well-definedroles and rules of operation (Heide and Wathne 2006).

Because the distributor has established its market cover-age, its net contribution should increase. The channelrelationship, with higher levels of tangible and intangi-ble inputs and outcomes, provides manufacturers anddistributors alike with acceptable levels of satisfactionand benefits (Jap and Ganesan 2000). Therefore, a gov-ernance misfit would generate strong negative reactionsat this stage, casting doubts on the channel relationship.


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In contrast, a good fit will enhance relationship qualityand improve channel performance.

Research on interfirm learning demonstrates that simi-larity of behavioral norms between partnership firmsforms a central part of interfirm knowledge that facili-tates communication and understanding (Grant 1996;Lane and Lubatkin 1998). Thus, the fit of relationshiprole operates as a common set of interfirm knowledge,which ultimately leads to superior channel performanceand satisfaction. This interfirm learning requires suffi-cient time and frequent interaction to establish; there-fore, its effect will likely occur as channel relationshipmatures. In short, we propose the following:

H3: (a) Governance fit exerts stronger positiveeffects on channel performance and channelsatisfaction during the mature stage than dur-ing the channel buildup stage, and (b) gover-

nance misfit exerts stronger negative effects onchannel performance and channel satisfactionduring the mature stage than during thebuildup stage.

Governance Fit (Misfit) and MarketUncertainty

In a dynamic and globalizing economy, uncertainty isinevitable. The challenge to most firms is to be bothstrategically fit and dynamically capable (Teece, Pisano,

and Shuen 1997). The ability of governance mechanismsto motivate and control distributors continuously is apivotal concern (Jap 1999). Although we lack an empiri-cal foundation for our postulate, we posit that gover-nance fit is both relevant and highly salient when mar-ket uncertainty increases. First, the greater theuncertainty, the more likely organizations would be toenter into exchange relationships with other organiza-tions of a similar background (Podolny 1994) becausequality cannot be directly observed. Second, whendemand is uncertain, it is important for manufacturersand retailers to share information (He, Marklund, and

Vossen 2008). The partners with governance fit have abetter mutual understanding that would facilitate inter-firm information sharing. Third, market uncertainty ingeneral gives rise to an adaptation problem (Heide andStump 1995). The more similar the role orientations thepartners hold, the more willing they would be to adaptto the changing environment together. Therefore, wepropose the following:

H4: (a) Governance fit exerts stronger positiveeffects on channel performance and channelsatisfaction in high-market-uncertainty condi-tions than in low-market-uncertainty condi-tions, and (b) governance misfit exertsstronger negative effects on channel perform-ance and channel satisfaction in high-market-uncertainty conditions than in low-market-uncertainty conditions.

METHOD

Research Design

To test our hypotheses, we required a study thatinvolves multiple firms (to assess the effects of differentgovernance strategies), multiple distributors (to assessdifferent role orientations and distributorship develop-

ment), and multiple industries (to assess the effects ofmarket uncertainty). Similar to most firm strategy andmarket channel studies, this study used trained researchassistants to conduct face-to-face interviews with seniorexecutives. As Hoskisson and colleagues (2000) andothers (Gu, Hung, and Tse 2008; Zhou, Yim, and Tse2005) point out, different research methods havevarying limitations (low response rates), potential biases(social desirability), and costs. Among them all,personal interviewing, though the most expensive, isrecognized as the most reliable form of data collection(Hoskisson et al. 2000) in an emerging market such as

China.

Specifically, we surveyed the marketing manager or asenior executive of the distributor firm, who is usuallydirectly involved with the strategic and tactical opera-tions of the firm. These managers are familiar with over-all corporate activities as well as the operations betweenthe company and its supplier. In responding to the study,respondents identified and assessed their supplier rela-tionship, a crucial construct in the study.

To ensure stronger external validity, we identified

four industries in China for which independent distribu-tion is the primary method, according to the ChinaMarket Yearbook (Gao et al. 2006), the most commonlyused cross-industry reference in the market. Theseindustries include electronics, architectural and fitmentmaterials, lighting, and cosmetics. We recruited andtrained a team of ten research students from a majoruniversity in Shanghai to conduct face-to-face


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interviews, as is typical in firm studies in China(Hoskisson et al. 2000), to ensure a reasonable responserate and quality responses.

Data collection consisted of two stages. In the firststage, the interviewers conducted in-depth interviewswith 20 senior managers from both manufacturing firmsand distributors, whose responsibilities included manag-ing their firms channel relationships. These interviewsprovided insights into the particular governancestrategies, distributor role orientations, and other keyconstructs in our main study as well as the measurementitems.

In the second stage, we identified the most influentialtrade fairs for each of the four industries. The researchteam and interviewers attended these national tradefairs to select independent distributors randomly asrespondents to our survey. One senior manager of each

distributor was contacted for personal interviews. Theinterviewers informed the respondents of the confiden-tiality of their responses, explained the academic pur-pose of the project, and then requested their participa-tion. Each respondent received a gift (valued at US$25)and was promised a summary report. Of the 400 dis-tributors contacted, 208 initially agreed to participate;however, of these firms, the senior managers of 17 wereunavailable for the interview. Altogether, 191 distribu-tor surveys were completed. After screening and deletingmissing data and outliers, we retained 188 distributorsurveys for data analysis. We evaluated potential non-

response bias (Armstrong and Overton 1977) by com-paring early and late respondents in their scores of themajor constructs as well as the number of branches,number of employees, and types of distribution. Wefound no significant differences.

Of the 188 firms surveyed, firm size in terms of thenumber of employees varied widely: 43.2% had fewerthan 20 employees, 21.3% had 2050 employees,17.5% had 51200 employees, 12.0% had 2011000employees, and 6% had more than 1000 employees.The mean length of their relationship with a major sup-

plier was 5.33 years, with 22.3% of the firms havingworking relationships of less than 2 years, 47.3%between 2 and 5 years, 25.5% between 5 and 10 years,and 4.9% more than 10 years. This breakdown repre-sents a fair distribution of firms with different relation-ship lengths with their major supplier. Most respondentswere presidents (25.0%) or senior managers in chargeof sales operations (49.5%), confirming that they werethe appropriate key informants for the study.

Measures

We modified appropriate existing scales from a litera-ture review for our research purposes. Specifically,all the measures were professionally translated throughback translation to ensure conceptual equivalence(Craig and Douglas 2000). We tested and modified thescales using the results of our presurvey interviewsto ensure item equivalence. Most were Likert scales(1 = strongly disagree, and 7 = strongly agree; seethe Appendix for all scales).

Two constructs (channel performance and channel satis-faction) reflected channel outcomes. For the channelperformance measure, we employed a scale reported byKumar, Stern, and Achrol (1992) that pertains to howwell the distributor perceives the performance of its sup-plier as a result of the collaboration. The channel satis-faction scale came from Jap and Ganesan (2000); it

measures the extent to which the distributor is satisfiedwith the relationship.

We operationalized incentives as the relative magnitudeof economic incentives (Murry and Heide 1998). Forsocialization, we developed the scale on the basis ofWathne and Heides (2000) definition and description,which refers to the (1) degree of relational and profes-sional support the supplier has given to the distributor;(2) form of support, including skill training and infor-mation gathering; and (3) promptness of the responsesto distributor complaints and inquiries.

Montgomery (1998) defines a normative role as the ten-dency to rely on the logic of appropriateness, or a rule-driven decision-making mode (March 1994). No meas-ures of the normative role or the logic of appropriatenesshave been established previously, so we pretested andmodified items during the presurvey interviews. Weadopted several relational norms that most commonlydescribe friendship in a Chinese business contextnamely, integrity, virtue, and justice. To measure theeconomic role, again with no established measures, wepretested and modified new items in the presurvey inter-

views. Among the common perceptions of what consti-tutes a businessperson in China, we identified three items:competition, performance, and unethical practices.

Relationship stage and market uncertainty were dummyvariables in our survey. The respondent answeredwhether his or her companys relationship with the sup-plier was new or mature. The respondent also evaluatedwhether the market uncertainty in his or her industry



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was high or low. In addition, the survey included controlvariables, including firm size (logarithm of the numberof employees) and relationship length (how many yearsthe relationship had lasted).

RESULTS

The moderation perspective has been one of the mostcommonly adopted perspectives in strategic fit manage-ment research (Xu, Cavusgil, and White 2006). Thebasic notion of the moderation perspective is that thereis no universally superior strategy and that the impact ofthe predictor variable (strategy) on the criterion variable(performance) is dependent on the level of a thirdvariable (e.g., distributors role). The interactionbetween predictor and moderator variables is a deter-minant of the outcome. In this study, we propose thatchannel governance strategy and distributor role orien-tation jointly determine channel outcomes. Thus, we

employed moderated regression analysis to test thisinteraction term. An advantage of this perspective is thatit allows for a test of main and interaction effectssimultaneously.

The analysis we used to test the proposed hypothesesconsisted of two stages. In the first stage, we evaluatedthe reliability and construct validity of the independentand dependent constructs using Cronbachs alpha coeffi-cients and confirmatory factor analysis. After establish-ing the reliability and construct validity, we representedeach construct by its summary score. In the second stage,

we estimated the analysis equations (which we detailsubsequently) using the moderated regression approachthat Jaccard, Wan, and Turrisi (1990) and Aiken andWest (1991) provide. To reduce multicollinearitybetween the interaction terms and their components (Jac-card, Wan, and Turrisi 1990), we mean-centered eachscale that had an interaction term (Aiken and West1991). Then, we created the interaction terms by multi-plying the relevant mean-centered scales.

To establish the reliability and validity of the measures,we performed confirmatory factor analysis. We

restricted each measurement item to load on its hypoth-esized factor. All items revealed significant loadings ontheir expected constructs, in support of convergentvalidity. As we show in the Appendix, the factor load-ings and model fit indexes (2(89) = 136.822,p < .001;comparative fit index = .98; goodness-of-fit index = .92;normative fit index = .93; and root mean square error ofapproximation = .05) indicate that our model fits thedata well.

Next, we examined the discriminant validity of themeasures with a variance extracted test (Fornell andLarcker 1981; Netemeyer, Johnston, and Burton 1990).The average variance extracted indicated the amount ofvariance captured by the constructs measures relative tomeasurement error and the correlations ( estimates)among the latent constructs in the model. Estimates of.50 or higher indicate the validity of a constructs meas-ure; all our constructs achieve this criterion (see theAppendix). When we compared the variance-extractedestimates for each pair of constructs with the square ofthe correlations between the two constructs, we foundthat both variance-extracted estimates for each pair ofconstructs were greater than their squared correlations,in support of their discriminant validity.

Finally, to establish the internal consistency of the meas-ures, we computed their Cronbachs alpha and compos-ite reliabilities. As we show in the Appendix, the alpha

score for each construct is higher than the widelyaccepted threshold of .70, and their composite reliabili-ties exceed .70. In Table 1, we present the correlationmatrix and descriptive statistics of the measures.

In Table 2, we report the results of ordinary leastsquares moderated regression. When we controlled forthe effects of firm size, relational length, market uncer-tainty, and relationship stage, firm economic incentivesrelated positively to performance ( = .49,p < .001) andsatisfaction ( = .37, p < .001). Similarly, a manufac-turers socialization efforts related positively to perform-

ance ( = .18, p < .01) and satisfaction ( = .29, p

effective distributor governance in

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