Journal of Operations Management 28 (2010) 257–268

Implementing supply chain information integration in China: The role ofinstitutional forces and trust§

Shaohan Cai a,*, Minjoon Jun b,1, Zhilin Yang c,2

a Sprott School of Business, Carleton University, 1125 Colonel By Drive, 710 Dunton Tower, Ottawa, Ontario, K1S 5B6, Canadab Department of Management (MSC 3DJ), College of Business, New Mexico State University, Las Cruces, NM 88003, USAc Department of Marketing, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong

A R T I C L E I N F O

Article history:

Available online 11 November 2009

Keywords:

Supply chain management

Institutional theory

Transaction cost analysis

Trust

Information integration

Guanxi

Structural equation modeling

A B S T R A C T

This study investigates the effects of Chinese companies’ institutional environment on the development

of trust and information integration between buyers and suppliers. Three aspects of China’s institutional

environment are salient: legal protection, government support, and the importance of guanxi

(interpersonal relationships). This study uses structural equation modeling to analyze data collected

from 398 Chinese manufacturing companies. Government support and importance of guanxi

significantly affect trust, which subsequently influences two elements of information integration,

namely, information sharing and collaborative planning. Furthermore, the importance of guanxi has a

direct, positive impact on information sharing, and government support has a direct, positive effect on

both information sharing and collaborative planning.

� 2009 Elsevier B.V. All rights reserved.

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Journal of Operations Management

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1. Introduction

Researchers have long advocated the notion that informationintegration is critical to the success of supply chain management(SCM) (Devaraj et al., 2007; Kulp et al., 2004; Mohr and Spekman,1994; Monczka et al., 1998). The various forms of informationintegration across organizational boundaries can be summarizedin two key elements: information sharing and collaborativeplanning (Kulp et al., 2004). Evidence also shows that trustbetween parties plays a crucial role in achieving informationintegration successfully in a supply chain (Handfield and Bechtel,2002). Various researchers thus demonstrate the significantlinkages between the construct of trust and information sharingand collaborative planning, drawing on transaction cost analysis(TCA) (e.g., Claro et al., 2003; Klein, 2007) and sociological views(e.g., McEvily and Marcus, 2005; Zaheer et al., 1998).

Yet despite widespread acceptance of the idea that theinstitutional environment is a critical factor for SCM development(Yaibuathet et al., 2008), the impact of institutional pressures on

§ The authors gratefully acknowledge a grant from the Research Grant Council of

Hong Kong SAR (Project No. 9041182, CityU 1454/06H).

* Corresponding author. Tel.: +1 613 520 2388; fax: +1 613 520 4427.

E-mail addresses: acai@sprott.carleton.ca (S. Cai), minjun@nmsu.edu (M. Jun),

mkzyang@cityu.edu.hk (Z. Yang).1 Tel.: +1 575 646 4987; fax: +1 575 646 1372.2 Tel.: +852 27844644; fax: +852 27889146.

0272-6963/$ – see front matter � 2009 Elsevier B.V. All rights reserved.

doi:10.1016/j.jom.2009.11.005

chain members’ behavior remains largely unexplored by research-ers. To fill this research gap, we attempt to expand the scope of thetraditional model of trust–information integration by incorporat-ing institutional forces; we maintain that the extent of trust andinformation integration depends greatly on the institutionalpressures that surround a supply chain (Wicks and Berman,2004). Moreover, we posit that these institutional forces may exerta direct and/or indirect influence on members’ informationintegration practices. Building on institutional theory and TCA,we also seek to answer to the question of whether linkages amonginstitutional forces, trust, and information integration may existwithin a single nation, particularly China.

Institutional theory prioritizes the notion that a firm’s businessdecisions depend on various economic, social, cultural, andpolitical forces exerted by relevant institutes, such as state andlocal governments, social networks, and other powerful organiza-tions (Lau et al., 2002; Scott, 2001). Like national culture theory(e.g., Donney et al., 1998; Zaheer and Zaheer, 2006), institutionaltheory has gained widespread adoption as a means to explaincompanies’ behaviors across countries (Wu et al., 2008). Note thatinstitutional theory regards culture as a key component ofinstitutional environments (Lau et al., 2002; Scott, 2001; Wuet al., 2008): traditional values and practices appear embedded in acountry’s social and economic institutions (Fey et al., 2009), andvarious social, economic, and political institutional forces derive atleast partly from national culture. Furthermore, national culturemay shape the nature and impact of management practices in that

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country (Wu et al., 2008). Together, these findings imply thatnational culture influences how both individuals and companiesreact to pressures exerted by institutional forces.

To date, though researchers study the effects of institutionalenvironments on the development of interfirm trust in cross-country settings (e.g., Rao et al., 2005; Zaheer and Zaheer, 2006),they have largely ignored the effects of within-country differencesbetween firms’ institutional environments. Yet across the vastexpanses of developing countries like China, incomplete sets ofcommercial rules and arbitrary interpretations of those rulescertainly occur, and diverse regional and industrial characteristicsexist (Martinsons, 2008). As such, each firm must adapt to its ownunique institutional environment. Therefore, we examine whetherChinese manufacturing firms, responding to different types andlevels of institutional forces, exhibit heterogeneous behaviors interms of trust building and information integration with othersupply chain members. Our focus is not on cross-country butrather within-country variations.

Drawing on Lewin et al.’s (1999) framework, we posit that threemajor institutional forces in China vary significantly across regionsand greatly affect the development of trust and informationintegration in supply chains. These three institutional forces—legalprotection, government support, and the importance of guanxi(interpersonal relationships)—may affect the level of trust developedbetween buyers and suppliers, which would influence the extent ofinformation integration, including information sharing and colla-borative planning, between parties. The institutional forces also mayhave direct effects on information integration. To test our researchmodel, we collect empirical data from 398 Chinese manufacturingfirms, which we analyze with structural equation modeling.

With this approach, we contribute to existing literature inseveral ways. We incorporate the relationship proposed by TCAbetween trust and two ingredients of information integration intoan institutional theory-based framework, in which institutionalforces exert pressures on the trust–information integration linkagein the context of buyer–supplier relationships. We also identifythree salient aspects of China’s institutional environment. Theoutcomes therefore offer guidelines that multinational companiesmight use when they encounter obstacles to trust building andinformation integration with offshore supply chain memberslocated in China. Finally, this study offers empirical insights intothe direct effects of China’s institutional factors on informationintegration, as well as their indirect effects through the mediationof trust.

2. Institutional forces

Institutional theory posits that firms are affected by theeconomic, social, and political forces exerted by its relevantinstitutes (Scott, 2001). Prior studies have identified a number ofdifferent institutional forces. Lane (1997) shows that tradeassociations, legal regulations, and technical standards result ingreater interfirm trust and collaboration in Germany compared within Britain. Lewin et al. (1999) propose that the major forces in anorganization’s institutional environment include the role ofgovernment, rule of law, structure of the capital market, culture,and educational systems. Similarly, Oxley and Yeung (2001)maintain that rule of law and the availability of credible paymentchannels are critical to the development of e-commerce. Child et al.(2003) suggest that legal support, official intervention, arbitrarinessof officials, and the importance of guanxi provide the key majorinstitutional forces that affect cross-border firms operating in China.

Two implications emerge from these studies. First, of thevarious institutional forces, only a few impose predominantpressures on a particular business decision by the firm. Second,unique institutional forces might dominate in different countries,

such as guanxi in China (Child et al., 2003) and trade associations inGermany (Lane, 1997). Therefore, findings from an institutionalanalysis of one country cannot generalize to the setting of anothercountry without the support of empirical evidence.

These studies consider the various effects of diverse institu-tional factors on management practices in cross-country contexts,but it is also important to recognize that the effects of institutionalforces may vary significantly within a single country, depending onthe firms’ location, industry type, size, and so forth. In the pastthree decades, for example, the Chinese Central Government hasdelegated a substantial portion of its authority to local govern-ments, allowing them to develop local policies that apply to theirlocal business environments. In addition to these diverse regionaland industrial policies implemented by local governments (Childand Tse, 2001; Lau et al., 2002), different governmental policiessupport firms in specific industries (e.g., telecommunications) or ofspecific sizes (e.g., support for innovation by small companies)(China SME Online, 2007; Hu and Hsu, 2007). The effectiveness ofChinese legal systems, particularly in terms of regulatorycompliance, also varies greatly (Child and Tse, 2001). As ageographically vast nation, China displays significant differencesacross regional cultures (Cui, 1999). As such, individual Chinesefirms may be subject to different types and levels of institutionalpressures. From an institutional theory perspective, we ask: doChinese manufacturing firms exhibit different behaviors towardinterfirm trust building and information integration initiativesbecause of the influence of various institutional forces?

In this paper, drawing on Lewin et al.’s (1999) framework, wehave identified three major institutional forces that best reflect theunique characteristics of China’s institutional environment,namely, legal protection, government support, and importanceof guanxi. Lewin et al.’s (1999) framework has been developed todescribe the nation-wide institutional environment. In theadoption of the three institutional forces, we considered thefollowing two criteria: (1) each institutional force should havegreat potential to exert varying degrees of influence on individualfirms, depending on firm characteristics, and (2) the forces shouldexert direct and significant effects on firms’ decisions in interfirmtransactions and relationships.

The three institutional factors we identify indicate significantvariations across China. First, Chinese firms often receive differentlevels of legal protection because of the relative inconsistency ofChinese legal systems (Hsu et al., 2005; Luo, 2003). As such, weinterpreted the rule of law as the extent to which a firm couldreceive legal protection, and thus relabeled it as legal protection.Second, the role of government refers to the extent to whichgovernments affect a firm’s decision making. Unlike countries inthe West, where governments generally exert their influencethrough established and transparent industrial policies andregulations, Chinese governments, especially local governments,often are directly involved in firms’ decision making processes andprovide various types of support, such as financial aid, favorablepolicies, and reduced land-use fees (Luk et al., 2008; Thun, 2006;Walder, 1995), depending on the firm’s importance to the localeconomy, industry type, size, and ownership. The various levels ofsupport from government could thus greatly affect the firm’scompetitiveness and behaviors. Therefore, in this paper, werelabeled the Government’s role as government support. Third,one of the most important characteristics of Chinese culture is theprevalence of guanxi (interpersonal relationships), which affectsfirms’ business decisions and behaviors (Lee et al., 2001; Luk et al.,2008; Park and Luo, 2001). The dramatic transition of Chinesesociety in the past three decades has altered the degree ofimportance of guanxi for interfirm business activities, dependingon the regions, industry types, and ownership of the firm (Park andLuo, 2001; Xin and Pearce, 1996). Therefore, we maintain that the

Fig. 1. Conceptual model.

S. Cai et al. / Journal of Operations Management 28 (2010) 257–268 259

importance of guanxi is another varying institutional force thatmay significantly influence trust and information integrationbetween organizations.

We summarize these major institutional forces in ourconceptual research model in Fig. 1. We also note that thoughlegal protection and government support are not cultural factorsper se, they relate closely to Chinese national culture.

2.1. Legal protection

A strong legal system reduces transaction uncertainty, lowersthe costs of reputation building, and increases trust in markets andcontracts (Oxley and Yeung, 2001). The effectiveness of legalprotection therefore appears consistently as an influentialinstitutional force in prior studies (e.g., Child et al., 2003; Lane,1997; Lewin et al., 1999; Oxley and Yeung, 2001; Scott, 2001); itdepends on the extent to which detailed formal legal rules anddoctrine exist, the structure and operations of the institutions thatimplement them, and the so-called ‘‘legal culture’’ encompassingcustoms, opinions, and the ways of doing and thinking that definepeople’s practices of and attitudes toward laws (Lubman, 1999). Inan emerging country such as China, differences among regionalinstitutions that implement laws may result in different levels oflegal protections for firms. Despite the substantial reforms toChina’s legal system since 1979 and recent commercial laws andregulations, the legal system remains subject to frequent and deepinterventions by both central and local governments (Child andTse, 2001). Furthermore, China’s legal system is neither transpar-ent nor consistent (Hsu et al., 2005; Luo, 2003). Thus, firms mayreceive different levels of legal protection, depending on theirlocation and relationship to central or local governments.

China’s unique legal culture also might alter the effectiveness oflegal protection. Traditional Chinese culture emphasizes hierarchyover individual rights, and modern Chinese laws consistently treatrights as contingent and changeable according to the state’s policy(Lubman, 1999). Consequently, Chinese laws are less effective inprotecting individual and organizational rights than are their

Western counterparts. Traditional Chinese culture also emphasizesnegotiation and compromise rather than legal means to resolvedifferences, with an inclination against strict, literal applications ofwritten law, preferring instead a more flexible and liberal approachto resolving disputes (Lubman, 1999; Wacks, 1999). Accordingly,individuals and organizations may be reluctant to turn to legalsystems to resolve their disputes (Lubman, 1999), which likelydiminishes the role of the Chinese legal system.

2.2. Government support

Governmental intervention in business activities is common inChina. Traditional Chinese culture classifies people according totheir official status, and high-ranking officials enjoy substantialpower. Consequently, what the top leader says is the rule, andofficials generally feel an obligation to educate and lead the masses(Le, 2003). Furthermore, firms often regard government involve-ment as a norm and view their relationship with governmentofficials as a form of social capital (Luk et al., 2008).

Even today, the Chinese government, particularly at the locallevel, can greatly affect a firm’s business decisions. The centralgovernment rarely becomes directly involved decision making dueto the diminishing trend of its involvement in business governanceand ownership (Child and Tse, 2001), but it often implementsbusiness-friendly policies in specific regions and industries orpolicies tailored to specific firm sizes or types of ownership. Ifnecessary, it even provides financial support to firms to encouragethem to comply with its guidelines. For example, the Chinesegovernment developed a ‘Go West’ policy to motivate large sizeChinese firms to invest in the Western part of China in 2000. Thegovernment provided financial incentives, including low-interestloans from state-owned banks (Huang, 2004).

In contrast, local governments exert more direct influences byimplementing formal and informal policies related to economicactivity. Local officials generally regard business entities withintheir jurisdictions as primary sources of revenues (Walder, 1995),and the amount of revenues generated greatly affect their own

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careers and promotions. This belief prompts local officials tobecome deeply involved in local firms’ business decisions, acting asboth planners and supporters of local businesses by developingbusiness-friendly policies, offering financial support, and evenproviding specific suggestions in their attempt to gain advantagesover firms located in other regions (Luk et al., 2008; Thun, 2006;Walder, 1995).

Large firms that provide much of a local government’s revenueand employ many local people often receive the strongest supportfrom their local officials. Many of them also are partially owned bylocal governments (Walder, 1995). For example, Haier, theelectronic appliance manufacturer, is partially owned by theQingdao municipal government, which helped the firm growrapidly by acquiring dozens of unprofitable state-owned andcollective firms in 1990s, until it became one of the mostprestigious firms in China (Tipton, 2007). Government supportcan also facilitate acquisition and coordination between firms;when Haier attempted to acquire the ailing Shunde WashingMachine Factory, located in Guangdong Province, it receivedsubstantial financial assistance from the local Shunde government,including loans, taxes, and land-use grants (Yi and Ye, 2003). Thissupport saved the firm much of the acquisition costs and enabledthe efficient and timely completion of the acquisition.

2.3. Importance of guanxi

The term ‘‘guanxi’’ refers to networks of informal, personalrelationships and exchanges of favors that dominate businessactivities throughout China and other East Asian countries (Lovettet al., 1999). For a firm, these informal relationships constitutesocial capital at the organization level (Luk et al., 2008). Personsand firms in a guanxi network are committed to one another bysocial norms of reciprocal and social obligations (Lee et al., 2001;Park and Luo, 2001). Through these networks, firms can obtainknowledge about changing rules, regulations, and incentivesystems from government officials, as well as information aboutnew product features, technical advances, and manufacturingtechnologies from managers of other firms (Luk et al., 2008).

Following Child et al. (2003), we consider the importance ofguanxi a crucial institutional force embedded in a Chinese firm’sexternal environment. Importance of guanxi refers to the extent towhich guanxi is critical to a firm’s success and is emphasized by itsinstitutional environment. Notably, for firms in China, importanceof guanxi to their success may vary depending on their industrytypes, regional economies, sizes, and ownerships (Park and Luo,2001; Xin and Pearce, 1996). Such varying perceptions of guanxicould influence interfirm behaviors. For example, in open regionsthat downplay guanxi, such as in special economic zones, firmstend to rely more on arm’s-length relationships, whereas in moreclosed economic regions, firms are inclined to engage in formal andinformal collaborations with other firms, as well as withgovernment officials (Park and Luo, 2001; Punnett and Yu, 1990).

3. Key elements of information integration

Information integration comprises information sharing andcollaborative planning. Information sharing refers to the exchangeof critical, often proprietary, information between supply chainmembers through media such as face-to-face meetings, telephone,fax, mail, and the Internet (Mohr and Spekman, 1994). For chainmembers to coordinate activities effectively, they need toexchange various types of information (Kulp et al., 2004; Monczkaet al., 1998). For example, Benton and Zhou (2007) reveal thateffective information sharing significantly enhances supply chainpractices, such as supply chain planning and just-in-timeproduction. The types of information exchanged may include,

but are not necessarily limited to, inventory and replenishment,consumer research, financial status, growth ability, overhead coststructure, production capacity, or proprietary technology (Kulpet al., 2004; Monczka et al., 1998; Noordewier et al., 1990; Uzzi,1997). Furthermore, to sustain a successful partnership, informa-tion sharing between partners should be frequent, bidirectional,informal, and noncoercive (Mohr et al., 1996; Mohr and Nevin,1990; Mohr and Spekman, 1994).

Collaborative planning refers to collaborations among tradingpartners to develop various plans such as production planning andscheduling, new product development, inventory replenishment,and promotions and advertisement. They may explicate futurecontingencies and the resulting duties and responsibilities in therelationship (Claro et al., 2003). Collaborative planning thuscomplements information sharing and offers a complete pictureof information integration. To gain a competitive advantage, firmsin the supply chain often undertake initiatives to coordinate andstreamline various activities through the active exchange ofnecessary information. Previous studies commonly report thatcollaborative planning and actions relate positively to supplyoutcomes (Kulp et al., 2004; Mohr and Spekman, 1994; Monczkaet al., 1998). As Kulp et al. (2004) and Devaraj et al. (2007) note,information sharing between members is a prerequisite forsuccessful information integration across the supply chain, yet itcannot enhance the competitiveness of the chain if the memberslack the capability for collaborative planning.

4. Trust in the interfirm setting

Prior studies offer numerous definitions of trust. For thepurpose of the current study, we adopt Zaheer et al.’s (1998)definition of interfirm trust as one party’s expectation that theother party can be relied on to fulfill obligations, behave in apredictable manner, and act and negotiate fairly even when thepossibility for opportunism exists. This definition focuses on theexpectations, rather than the origins, of trust, whereas many priorstudies address trust at the individual level according to its origins.For example, Kramer (1999) identifies six types of individual trustbased on their antecedents, such as general predisposition, history,third parties, membership in social/organizational categories,organizational roles, and rules. Yet these origins eventually leadto ‘‘an individual’s expectations about other’s trustworthiness’’(Kramer, 1999, p. 575).

In interfirm settings, researchers often define trust according tothe expectations of desired actions performed by other parties (e.g.,Barney and Hansen, 1994; Chiles and McMackin, 1996; Das andTeng, 1998; Doney and Cannon, 1997). Arguably, parties in aninterfirm exchange often present their vulnerabilities to each other,which are subjected to the potential exploitation. The major role oftrust in an exchange is to serve as a governance mechanism thatmitigates opportunisms (Doney and Cannon, 1997); without the riskof opportunism, there would be no need for trust in interfirmsettings (Chiles and McMackin, 1996). Because we consider theeffects of trust on information integration, our use of an expectation-based trust definition enables us to focus on companies’ behaviors inresponse to uncertainty, particularly opportunistic behaviors.Nevertheless, we acknowledge that various origins of individualtrust may apply to an interfirm setting.

5. Mediating role of trust

Interfirm trust helps protect transaction-specific investments(TSIs), which are human and physical assets dedicated to aparticular relationship and entail sunk costs that would beunrecoverable if the relationship were terminated (Grover andMalhotra, 2003; Heide and John, 1992). Williamson (1979) argues

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that asymmetric TSIs create firm vulnerability that its tradingpartners may exploit. To protect TSI, the firm can either internalizeits transactions or attempt to increase the extent of hierarchicalcontrol over the trading partner (Zaheer and Venkatraman, 1995).

This classic TCA view depends largely on the economic-orientedassumption that exchange partners are inherently untrustworthyand constantly attempt to behave opportunistically (Barney andHansen, 1994). Recent refinements to the TCA instead argue thattrust generally characterizes business transactions and relation-ships (Hill, 1990; Nooteboom et al., 1997) and reduces transactioncosts by minimizing opportunism in relationships (Zaheer et al.,1998). Following this logic, many researchers claim that as anindicator of confidence in a trading partner’s cooperative behaviorsand a substitute for costly control and coordination mechanisms,trust reduces firms’ relational risks, which makes it essential to theeffective management of integrated information and materialflows across the supply chain (e.g., Ireland and Webb, 2007; Klein,2007; MaCarter and Northcraft, 2007; Zaheer and Venkatraman,1995).

However, as Ireland and Webb (2007) note, most organizationaltheories, including TCA, fail to describe how trust could be built insupply chains. In the context of interpersonal trust production(Zaheer and Zaheer, 2006; Zucker, 1986), there exist three majortheoretical perspectives: process-based, according to which trustdevelops from past or expected exchanges; characteristic-based,such that trust is tied to the characteristics of individuals; andinstitutional-based, for which trust relates to an organization’sinstitutional environment, including the legal, political, and socialsystems that monitor and sanction social behaviors.

Some researchers (Barney and Hansen, 1994; Doney andCannon, 1997; Ireland and Webb, 2007; McCutcheon and Stuart,2000) attempt to address the issues related to the development oftrust among chain members by adopting a combination of theinterpersonal trust production view and some economic theories,such as TCA and resources dependence theory. These studies oftenfocus on process- or characteristic-based perspectives andoccasionally address institutional forces. For example, Doneyand Cannon (1997) and McCutcheon and Stuart (2000) combineprocess- and characteristic-based views with an economicperspective to identify key factors that influence trust, such assupply chain members’ reputations, size, and actions to fostertrust. In contrast, Barney and Hansen (1994) use institutional-based and economic perspectives to examine the factors that causeone firm to trust others and find that limited opportunities foropportunism, social and economic governance mechanisms, andinternalized social value, standards, and principles are key.Adopting a similar approach, Ireland and Webb (2007) identifyfour strategies that firms can use to create trust in the supplychain: common identity shared by members, boundary spannerswithin the chain, authority, and justice.

Another research stream notes the effects of different nationalinstitutional environments on trust development. Rao et al. (2005)provide an incomplete framework with a specific focus on the roleof national governments. Zaheer and Zaheer’s (2006) theoreticalframework addresses symmetric or asymmetric perceptions oftrust between partners, though they do not offer empiricalevidence to support their model.

In sum, prior transactions between partners, individualcharacteristics, and institutional environments all could affectthe development of trust and thus information integration.However, the institutional-based perspective may provide mostimportant determinant of trust in society (Zucker, 1986). Thisperspective also aligns with our primary objective, that is, toexamine linkages between institutional forces and trust andsubsequently with information integration. In contrast, theprocess-based perspective concentrates on the past and expected

exchanges between institutions or individuals, rather thaninteractions between institutions and their external environment,whereas the characteristic-based perspective focuses on thefeatures of individuals or institutions. Furthermore, these twoperspectives appear frequently in previous interfirm studies (e.g.,Gattiker et al., 2007; Hill et al., 2009; Ireland and Webb, 2007; Liuet al., 2009). Therefore, of the three options, we adopt theinstitutional-based perspective of trust to assess the effects of theinstitutional forces that surround individual firms.

6. Research model

Our model suggests that the three identified institutional forceshave significant impacts on trust, which subsequently affects twokey elements of information integration. In addition, the institu-tional forces may have direct effects on the two elements ofinformation integration, as we show in Fig. 1.

6.1. Effects of institutional forces on trust

Institutional forces likely are among the most critical determi-nants of trust (Zaheer and Zaheer, 2006; Zucker, 1986). As Wicksand Berman (2004) note, when firms make strategic decisions totrust trading counterparts, their decision making dependssignificantly on their institutional environment. Similarly, inChina, we believe that legal protections, government support,and guanxi may influence firms’ decisions to build trust towardtheir suppliers.

First, legal protection influences transaction integrity and trustamong firms. The establishment of interfirm trust due to legalprotection may be comparable to the development of interperso-nal trust based on formal rules within an organization (rule-basedtrust) (Kramer, 1999) and calculations of punishment associatedwith violations of rules (calculus-based trust) (Maguire et al.,2001). Within an organization, formal rules and contracts establisha shared understanding of appropriate behaviors. Thus, expecta-tion and depersonalized belief regarding other’s behaviors, or rule-based trust, could be established (Kramer, 1999). Furthermore,rules and contracts explicitly define the consequences of viola-tions, so the trustor should believe the trustee will behave in acertain way to avoid the costs of doing otherwise. Thus calculus-based trust is established (Maguire et al., 2001).

Similarly, in the interfirm setting, Oxley and Yeung (2001) notethree reasons that legal protection is critical: (1) it generatestransparency and stability in behavioral boundaries, (2) it punishestransgressors and lowers the costs of reputation-building forhonest businesses, and (3) it influences general attitudes andincreases the level of trust. In other words, legal protectiongenerates shared understanding and expectations that others willact appropriately (similar to rule-based trust at interpersonallevel). Furthermore, it provides a basis for organizations tocalculate costs and benefits associated with their behaviors(similar to calculus-based trust at interpersonal level).

In turn, strong legal protections encourage stable, predictablebusiness environments. Firms thus can ‘‘afford’’ to trust oneanother; the legal system will protect their interests if a partnerabuses the trusting relationship. For example, Arrighetti et al.(1997) compare the effects of legal systems across three countriesand find that with their stronger legal protections, German firmsare most likely to exhibit trust toward others and engage incooperation, whereas Italy’s volatile legal environment makes itrisky for firms to trust others and pursue cooperative relationships.Similarly, the inconsistent legal protections for firms in China maymean that Chinese firms exhibit different levels of trust towardtrading partners. Therefore, it is hypothesized that:

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H1. The legal protection that Chinese firms receive relates posi-tively to their trust in suppliers.

Second, government support may affect firms’ decisions tobuild trust in the relationships with their trading partners. The longtradition of government control over the economy and the lack ofuniversal legal systems in China may encourage Chinese firms toturn to governments for help whenever they face conflicts. Forexample, Lianyungang Daybreak Natural Fibre Products, a firmlocated in Lianyungang City, found that several firms wereinfringing its intellectual property. It gained support from its localmunicipal government, such that local officials helped identify thesources of the infringement and offered legal advice regardingfiling lawsuits against the infringers. With the local government’ssupport, the firm blocked the sale of infringed products (Liu, 2005).

Such proactive government support may provide a governancemechanism that controls firms’ behavior and resolves theirdisputes. Therefore, we infer that firms that gain governmentsupport feel more confident that the government will protect theirinterests in conflicts with other firms. Similarly, Chinese firms’preference for dispute resolution through government interven-tion should make government support a major determinant of thedevelopment of trust toward their suppliers. We thereforeconsider whether Chinese firms with government support exhibithigher levels of trust toward their suppliers than those withoutsuch support. Therefore, it is hypothesized that:

H2. The government support that Chinese firms receive relatespositively to their trust in suppliers.

Finally, the term guanxi refers to a relationship or connectionbetween two parties in which each can prevail on the other for help(Martinsons, 2008). Particularly, guanxi involves exchange offavors (Abramson and Ai, 1997; Park and Luo, 2001). However,unlike business networks in the West, in which reciprocityrequires exchanges of equal value, the weaker party in guanxinetworks may request special favors without offering an equallevel of reciprocal obligation (Park and Luo, 2001). Nor does guanxirequire an immediate return of the favor. The party offering thefavor may opt to rely on guanxi later to obtain help of a specificnature from the other party at a specific time (Abramson and Ai,1997). Accordingly, in a guanxi network, two parties must trust theother’s reliability and competence to return favors at someundefined moment in the future (Abramson and Ai, 1997).

Trust in a guanxi network likely is comparable to interpersonaltrust based on informal rules. Rule-based trust might derive fromshared understanding of informal rules, such as transaction normsand interactional routines (Kramer, 1999). Similarly, guanxinetworks rely on social norms of reciprocal and social obligations(Lee et al., 2001; Park and Luo, 2001), and members of a guanxinetwork can refer to such norms to predict other’s behaviors. Trustalso appears easy to establish in a guanxi network. Because Chinesefirms tend to obtain their legitimacy by conforming to guanxirequirements in the institutional environment (Lu, 2002; Palmeret al., 1993), they also are more obliged to establish closerelationships with suppliers based on trust. Therefore, it ishypothesized that:

H3. The importance of guanxi in a Chinese firm’s institutionalenvironment relates positively to trust in suppliers.

6.2. Trust and information integration

Trust might have positive effects on information sharing andcollaborative planning (Heide and John, 1990; Zaheer et al., 1998).The provision of critical information makes the providing partyvulnerable to the opportunistic behaviors of the other party.

However, with trust, the trading partners have confidence thateach will use the information received appropriately. That is, trustmitigates the inherent information asymmetry between tradingpartners by allowing more open and honest information sharing(McEvily and Marcus, 2005; Zaheer et al., 1998). Trust furtherallows parties to relinquish some control over decision making,which is a prerequisite for collaborative planning (Heide and John,1990). It gives each party more flexibility for granting concessions,especially if unforeseen contingencies arise (Zaheer et al., 1998).Therefore, we test for the effects of trust on information sharingand collaborative planning in the context of Chinese firms.Therefore, it is hypothesized that:

H4. A Chinese firm’s trust in its supplier relates positively toinformation sharing between them.

H5. A Chinese firm’s trust in its supplier relates positively tocollaborative planning between them.

6.3. Institutional forces and information integration

Hypotheses 1-5 suggest that the three institutional forces willaffect information integration through trust as a mediatingvariable. An important remaining issue is whether the threeinstitutional forces have direct impacts on information integration.Here we argue that the three institutional forces could have directeffects on the two elements of information integration.

First, the assurance of sufficient legal protections shouldmotivate firms to enter formal contracts that regulate theirtransactions and interactions. For example, according to Arrighettiet al. (1997), the well-developed German legal system encouragesGerman firms to develop continuous contracts for long-termrelationships, whereas Italian firms seldom do so because of theinefficiencies of their court system.

Accordingly, both information sharing and collaborative plan-ning might increase when trading partners introduce formalcontracts to regulate their information integration efforts. Inaddition to providing trustworthy protection, legal contracts mightcreate an environment in which all the parties can plan for futurecontingencies and provide a set of incentives to complete thecontracted obligations (Abramson and Ai, 1997; Poppo and Zenger,2002). Legal contracts, especially those with longer contractingterms, can foster exchanges of know-how (information sharing) andcollaborations that enhance quality and innovation (collaborativeplanning) (Arrighetti et al., 1997). Because formal contractsexplicitly define the obligations and expectations of trading partners(Cai et al., 2009; Cannon et al., 2000), they elucidate each party’scollaborative planning and information sharing roles, which mightnot only improve the efficiency of information integration but alsomitigate potential conflicts. Therefore, legal protection shouldmotivate trading parties to develop legal contracts, and have direct,positive effects on the two elements of information integration.Therefore, it is hypothesized that:

H6. Legal protection received by a Chinese firm relates positivelyto information sharing with its suppliers.

H7. Legal protection received by a Chinese firm relates positivelyto collaborative planning with its suppliers.

Second, Chinese central and local governments often imple-ment policies to induce active collaborations; for example, Xu et al.(2006) show that government incentives for environmentalprotection efforts significantly affected firms’ intentions tocollaborate to adopt green production technology. If necessary,governments might even be directly involved in the process offorming long term, collaborative relationships between trading

S. Cai et al. / Journal of Operations Management 28 (2010) 257–268 263

partners. For example, the government of Heilongjiang provinceinitiated a program to facilitate collaborations between suppliersof agricultural products and customers. Government officialstravelled with managers of the agricultural product manufacturingfirms to visit customers and encouraged them to form supply chainpartnerships (Heilongjiang Grain Bureau, 2008). Presumably, suchgovernment support facilitates collaborative relationships, result-ing in intensive information sharing and collaborative planning.

Furthermore, strong government support generally implies afirm’s good relationship with the government officials, who canbecome critical sources for information. With the decentralizationof power and increase in local protectionism, Chinese localgovernment officials can experiment with various regulatorymeasures, and they may even become directly involved in thedecision making process of many local firms (Luk et al., 2008).Through frequent formal and informal interactions with theseofficials, firms can obtain information critical to their commercialsuccess, such as planned changes in government policies orcompeting firms’ new management practices. Information andsuggestions from government officials thus may provide valuableguidelines a firm can use to cope with uncertainties in constantlychanging environments (Luk et al., 2008). If the firm shares thiscritical information with its trading partners and they incorporateit into their collaborative planning processes, supply chainperformance may improve. Thus, we posit that strong governmentsupport enhances the effectiveness of information integrationpractices by fostering collaborative relationship building andfacilitating sensitive information exchanges. Therefore, it ishypothesized that:

H8. Government support received by a Chinese firm relates posi-tively to information sharing with its suppliers.

H9. Government support received by a Chinese firm relates posi-tively to collaborative planning with its suppliers.

Finally, the spirit of information sharing and collaborativeplanning is inherent to guanxi, because personal relationshipsentail shared goals and cooperation (Abramson and Ai, 1997; Suet al., 2007). Two firms in a guanxi network act as resources foreach other and enhance their chances of survival and growththrough planned and unplanned exchanges of personnel, marketinformation, money, facilities, or political favors (Luo, 2007).Specifically, Chinese managers often prefer to obtain necessaryinformation through guanxi networks, because these sources offerinformation advantages, including timeliness, richness, and mini-mal bias (Luo, 2007). Offering information to other partiesconstitutes a favor, and because guanxi requires parties toexchange favors, the recipient of information is obligated toprovide valuable information later. Guanxi therefore enablesreciprocal information exchanges and likely makes such exchangeswith trading partners a norm for doing business. A firm is thuspressured to engage in such information sharing by its institutionalenvironment. Therefore, it is hypothesized that:

H10. The importance of guanxi in a Chinese firm’s institutionalenvironment relates positively to information sharing with itssuppliers.

Similarly, cooperation between parties is also expected in aguanxi network (Abramson and Ai, 1997; Su et al., 2007). Forexample, in an emerging market like China, guanxi networks helpfirms deal with market uncertainty and reduce transaction costsbecause the firms can exchange resources such as raw materials,production facilities, technologies, financial capital, distributionalchannels, and knowledge (Luo, 2003). These exchanges virtuallyrequire collaborative planning to specify the roles, responsibilities,

and expectations related to the resource exchange (Mohr andSpekman, 1994). In turn, these factors are critical to the success ofefficient business transactions and long-term relationships. There-fore, in an institutional environment that emphasizes guanxi, eachparty in the buyer–supplier relationship is expected to exchangevarious resources. To facilitate this resource exchange, the partnersmay actively engage in collaborative planning. Therefore, it ishypothesized that:

H11. The importance of guanxi in a Chinese firm’s institutionalenvironment relates positively to collaborative planning with itssupplier.

7. Research method

7.1. Sample and data collection

We tested the hypotheses in the context of manufacturing firmslocated in China. We collaborated with a marketing investigationfirm to conduct the study. The sampling frame consists of a list ofall manufacturing firms belonging to four-digit Chinese IndustrialClassification (CIC) codes 1311–4290. The random selection oftarget companies from the list relied on the stratified probabilityproportional to sizes (PPS) method, which ensures the samples’representativeness in terms of revenue, industry, and ownership.These firms span diverse industries (e.g., electronics, computerequipment, chemicals, transportation equipment, apparel, furni-ture, food, plastics). In each firm, a senior manager or a purchasingprofessional, directly involved in the procurement process, wasselected as the key informant.

The employees of the marketing investigation firm firstcontacted potential respondents by telephone to solicit theircooperation. Among the 1200 firms selected as target samples, thepotential informants of 117 firms could not be reached, and 663refused to cooperate. The employees of the investigation firminterviewed respondents from the remaining 420 firms on site andadministered the questionnaire. The informants chose a majorsupplier with which their firm did the most volume of business andresponded to the survey questions with regard to their exchangeswith that chosen supplier. After eliminating surveys with excessivemissing data and lower levels of confidence, we obtained 398completed responses, representing an effective response rate of33.2% (398 of 1200 firms).

To test for non-response bias, we compared the respondentfirms with those that declined to participate, as well as those thatwe could not reach, on their key characteristics (i.e., industry type,firm ownership, location, number of employees, and annual salesrevenues) through a series of Chi-square and ANOVA tests. Nostatistically significant differences between the groups surfaced.Therefore, we deem the representativeness of the sampleadequate.

The 398 firms in the final sample represent major industrialgroups in the manufacturing sector, including electronic and otherelectrical equipment and components (17.1%), industrial andcommercial machinery (15.3%), primary metals and fabricatedmetal products (except machinery and equipment) (12.1%),chemicals and allied products (11.8%), publishing and alliedindustries (8.5%), food and kindred products (5.5%), rubber andmiscellaneous plastic products (4.3%), apparel and other finishedproducts made from fabrics and similar materials (3.3%), textiles(3.0%), furniture (1.8%), and others (17.3%). Among them, 52% ofthe respondent firms hired a work force of fewer than 160employees; 41% employed from 160 to 1000 persons; and 7%employed more than 1000. Regarding annual sales revenue, 38%reported less than 25 million RMB (Chinese currency, equivalent toapproximately 0.125 U.S. dollar when the survey was conducted);

Table 1Standardized factor loadings, composite reliability, and AVEs for the measurement

model.

Construct Indicator Loading Composite

reliability

AVE1

Legal protection LP2 0.76 0.80 0.57

LP3 0.97

LP4 0.85

Government support GS1 0.87 0.85 0.59

GS2 0.91

GS3 0.86

GS4 0.83

Importance of guanxi IG1 0.89 0.81 0.58

IG2 0.79

IG3 0.82

Trust TR1 0.82 0.84 0.63

TR2 0.88

TR3 0.84

Information sharing IS1 0.86 0.82 0.53

IS2 0.84

IS3 0.80

IS5 0.84

Collaborative planning CP1 0.90 0.86 0.67

CP2 0.95

CP3 0.88

Note: AVE = average variance extracted.

S. Cai et al. / Journal of Operations Management 28 (2010) 257–268264

39% between 25 million and 100 million; 12% between 100 and 300million; and 11% reported more than 300 million. Approximately68% of the respondents were senior managers, with job titles suchas president, general manager, deputy general manager, director offactory, or chief purchasing officer.

7.2. Measures

The measures used for the constructs in our research modelappear in Appendix. To develop the questionnaire, we first pursuedscales verified by previous studies. When such scales were notavailable, we developed items on the basis of the prior literature.Two researchers translated all of the measures using back-translation processes to ensure conceptual equivalence (Hoskissonet al., 2000). Three academicians from fields related to SCMreviewed the initial questionnaire and offered feedback, whichprompted us to remove items they deemed irrelevant to thedomains of the designated constructs and modify the wording ofsome items. We also developed new items based on thesuggestions of these expert reviewers. For the pilot study, weadministered the questionnaire to 50 purchasing professionalsfrom various manufacturing firms in Shanghai, China, randomlyselected from the database held by the market investigation firm.These respondents answered the questionnaire items and pro-vided feedback about the design and wording of the questionnaire.We thus undertook some additional minor revisions.

7.3. Common method variance bias assessment

One respondent from each of the firm provided the data for thisstudy, which raises concerns of common method variance(Podsakoff and Organ, 1986). Therefore, we conducted Harman’sone-factor test (Podsakoff and Organ, 1986), one of the mostwidely used methods to evaluate the possibility of commonmethod variance (Podsakoff et al., 2003). Significant commonmethod variances would result in one general factor that accountsfor the majority of covariance in the variables. We subjected all theitems to a factor analysis, which indicates no general factor in theunrotated factor structure. The first factor accounts for only 32% oftotal variance, and the independent and dependent variables loadon different factors. Therefore, common method variance does notappear to pose a serious threat in our study.

7.4. Measure validation

To examine the adequacy of the multi-item scales in capturingtheir respective constructs, we apply a confirmatory model to thefull data set using the maximum likelihood approach in EQS 6.1(Bentler, 1995). The initial confirmatory model test results in amediocre model fit: the Chi-square value with 174 degrees offreedom is 667 (p = 0.00; ratio of Chi-square to the degrees offreedom = 4.1), NFI = 0.90; NNFI = 0.91; CFI = 0.92, IFI = 0.92, andRMSEA = 0.09. Two items (LP1 and IS4) show unacceptably largevariance in measurement errors (>1). Thus, these items were

Table 2Means, standard deviations, and correlations of the constructs.

Mean Std. deviation LP

Legal protection (LP) 4.28 1.35 1

Government support (GS) 3.87 1.30 .399**

Importance of guanxi (IG) 5.09 1.15 �.082

Trust (TR) 5.14 1.09 .114*

Information sharing (IS) 4.84 1.26 .130**

Collaborative planning (CP) 4.21 1.42 .209**

* Correlation is significant at the 0.05 level (two-tailed).** Correlation is significant at the 0.01 level (two-tailed).

deleted from the measurement model. The test of the revisedmodel provides excellent model fit: the Chi-square value with 155degrees of freedom is 461 (p = 0.00; ratio of Chi-square to thedegrees of freedom = 3.0), NFI = 0.93; NNFI = 0.94; CFI = 0.95,IFI = 0.95, and RMSEA = 0.07.

Next, we examined the possibility of multicollinearity amongthe remaining items by computing the variance inflation factor(VIF), which evaluates the degree to which each variable can beexplained by other variables (Hair et al., 1998). All VIFs are lessthan 2, well below the maximum acceptable cut-off value of 10,and thus indicate a lack of evidence of multicollinearity (Neteret al., 1996).

The remaining items had large, significant loadings (>0.7) ontheir designated constructs (see Table 1). In addition, thecomposite reliability of all the constructs is greater than 0.7,which indicates adequate reliability (Nunnally, 1978). Toevaluate convergent validity, we compute the average varianceextracted (AVE) for each constructs, all of which exceed therecommended minimum level of 0.5 (see Table 1) (Fornell andLarcker, 1981). To test for the discriminant validity of theconstructs, we compared the amount of shared variance of anytwo constructs with the AVEs of the constructs; the AVE of eachconstruct is greater than the shared variances between all pairsof factors in the model, which indicates a satisfactory level ofdiscriminant validity (Fornell and Larcker, 1981). We presentthe means, standard deviations, and correlations of theconstructs in Table 2.

GS IG TR IS CP

.399** �.082 .114* .130** .209**

1 .062 .131** .219** .340**

.062 1 .128* .178** �.007

.131** .128* 1 .715** .393**

.219** .178** .715** 1 .475**

.340** �.007 .393** .475** 1

Fig. 2. Structural equation model analysis results. Notes: Dotted lines indicate insignificant paths; *p < 0.05.

S. Cai et al. / Journal of Operations Management 28 (2010) 257–268 265

7.5. Data analysis and results

We test our hypotheses using the maximum likelihood procedurein EQS (Bentler, 1995). The fit indices suggest satisfactory model fit:Chi square with 159 degrees of freedom = 543 (p = 0.00; ratio of Chi-square to degree of freedom = 3.4), NFI = 0.91; NNFI = 0.92;CFI = 0.94, IFI = 0.94, and RMSEA = 0.08. Our results in Fig. 2 supportthe hypotheses, with the exception of H1, H6, H7, and H11.

8. Discussion

8.1. Theoretical implications

In this paper, we found that, in China, two institutional forces,government support and importance of guanxi, significantly affecttrust, which subsequently influences two elements of informationintegration. Furthermore, the importance of guanxi has a direct,positive impact on information sharing, and government support hasa direct, positive effect on both information sharing and collaborativeplanning. As argued by institutional theorists, these findings suggestthat the dynamic nature of institutional forces in an emerging marketsuch as China may shape firms’ intentions to build trust with tradingpartners and implement information integration. However, in thefast and ongoing transformation of Chinese society, government,legal systems, and national culture might result in additionalchanges to the institutional environment in the near future.

One interesting finding of this study is that legal protection, as aninstitutional force, does not have any significant effect on either trustor the two elements of information integration. It can be inferredthat perhaps the relatively inconsistent and gradually evolving legalsystems in China have contributed to these insignificant effects.Moreover, efforts to promote trust among firms require not just legalprotections of individual firms but also the prevalence of anappropriate legal culture across society. For example, Westerncountries are founded on the rule of law, and rulers are boundmorally and often politically by such rules (Lubman, 1999). Incontrast, China’s dominant, traditional culture holds that law issimply an administrative tool that rulers can use to control an unrulypopulace (Ropp and Barrett, 1990; Xiao, 2002). Chinese culture thusrelies on ‘‘government by man’’ rather than ‘‘government by law.’’Chinese firms in turn tend to distrust laws and constitutions (Roppand Barrett, 1990) and seek more reliable protection than that

offered by coercive laws and regulations from close relationshipswith authoritative government officials (Rao et al., 2005).

In Western countries, the universal acceptance of rules andregulations is critical to the establishment of trust, because formalcontracts and legal protections usually act as a means ofreassurance rather than as a tool for reinforcing conditions oftransactions (Lane, 1997; Lane and Bachmann, 1996). However, inthe case of developing countries such as China, without consistentlaw enforcement, there is a high risk that parties in a relationshipmay violate the contract terms, which provokes high litigationcosts (Rao et al., 2005). In these circumstances, as argued by Raoet al. (2005), firms tend to build trust with chain members mainlyon the basis of reciprocal, personal relationships (i.e., guanxi). Ourstudy’s findings thus support the aforementioned arguments thatboth government support and guanxi should have significantimpacts on the level of the buyer’s trust in the supplier.

If conflict arises, disputing parties tend to display a willingnessto seek mutually acceptable solutions through informal socialnetworks, because Chinese culture perceives open conflicts asindicators of interpersonal hostility (Tjosvold et al., 2006).Litigation, with its emphasis on formal, predetermined proceduresfor conflict resolution, appears as an obstacle to more personal,friendly resolutions (Peerenboom, 2002). Cooperative conflictresolution through guanxi also indicates goodwill, which couldenhance preexisting trusting relationships (Tjosvold et al., 2006).Thus, in an environment where guanxi is heavily emphasized, mostfirms appear obligated to rely on guanxi to resolve conflicts, as inthe case of isomorphic pressure from an institutional environment,thereby resulting in the enhanced trust between them.

When it comes to the direct effects of institutional forces oninformation integration, legal protection has no significant directimpact on information sharing and collaborative planning,probably because regulatory pressures in China lack effectivenessas governance mechanisms to safeguard against the potential risksinvolved in interfirm information communication. Endeavoring toachieve effective information integration across firms often risksthe opportunistic use of sensitive information and resultinginterdependence. Similarly, collaborative planning transcendsorganizational boundaries and enables trading partners to engagein various complex planning activities that are traditionallyregarded as the other party’s sole responsibility (Heide and John,1990). Therefore, it is difficult to draft contracts that specify all

S. Cai et al. / Journal of Operations Management 28 (2010) 257–268266

future contingences relating to information integration, and thisdifficulty, combined with the absence of a universal, formal rules,causes Chinese firms to rely more on guanxi and governmentsupport than on regulations and contracts, to counter the potentialrisks mentioned above.

Next, importance of guanxi has a significant direct impact oninformation sharing but not on collaborative planning. This islikely because of guanxi’s emphasis on promoting informalexchanges of resources and information (Lovett et al., 1999).Collaborative planning efforts usually involve formal, joint actionsbetween parties and thus demand formal routines for trouble-shooting problems and negotiating mutual adaptations to resolveproblems (McEvily and Marcus, 2005). Therefore, the success ofcollaborative planning depends on systematic arrangements toprovide resources and facilitate knowledge transfers (Combs andKetchen, 1999; McEvily and Marcus, 2005) rather than on informal,personal relationships. In contrast, government support has astrong, direct effect on information sharing and collaborativeplanning, which implies that Chinese central and local govern-ments significantly influence firms’ information sharing and othertypes of boundary-spanning activities through informal interac-tions with the firms and the formal implementation of regulationsand policies.

8.2. Managerial implications

For managers, the results of this study indicate that informationsharing and collaborative planning with trading partners in China isa complicated issue. The successful implementation of interfirminformation integration primarily depends on trusting relationships,as well as the influence of institutional factors conducive to suchintegration. First, it is a strategic decision to trust a trading partnerwith critical information. The currently incomplete legal systems inChina seem to encourage firms to rely more on government supportand guanxi networks to pursue their business goals and protect theirinterests. In other words, Chinese firms customarily establish guanxinetworks with carefully selected trading partners to build trust andseek assurance of government support to prevent problems orresolve conflicts before they engage in boundary-spanning informa-tion integration. However, government support and guanxi sufferfrom their own limits; perhaps these two factors serve ascomplements. Support from a local government cannot protect afirm’s interest beyond its jurisdiction, while guanxi networks cannotcompletely protect one party from the possibility that the otherparty will violate an implicit agreement.

Second, managers should recognize that China, as an emergingcountry, continues to undergo dramatic transitions. Our resultsrefer only to the current effects of institutional forces in China andshould be interpreted with caution. As countrywide legal reformcontinues, the wide gap between regions in their interpretationsand enforcement of laws and regulations decreases. Furthermore,changes in Chinese social structure may mean the diminishingimportance of guanxi. Similarly, as government severs more tieswith businesses (Child and Tse, 2001), the importance ofgovernment support may diminish. Therefore, managers shouldconsider the rapidly changing influences of institutional forces inChina before adopting various SCM practices, including informa-tion sharing and collaborative planning.

8.3. Limitations and future research directions

Several limitations in our research provide potential directionsfor further investigations. First, we include only the buyer’sstandpoint, whereas additional research could investigate ourproposed model from both the buyer’s and the supplier’sperspectives concurrently. Second, we examine the mediating

effects of trust between institutional forces and informationintegration, yet prior research also indicates that informationsharing may affect trust (Tsai, 2001). Therefore, informationintegration might meditate between institutional forces and trust,and further research should investigate the reversed roles ofinformation integration and trust. Third, prior studies suggestinformation sharing and collaborative planning may be comple-ments to each other (Devaraj et al., 2007; Kulp et al., 2004;Monczka et al., 1998). Researchers could conduct longitudinalstudies to investigate their potential reciprocal relationships.Fourth, because they rely on a cross-sectional study, our researchfindings can only imply, rather than prove, the casual relationshipsbetween the study’s constructs, so they require cautious inter-pretation. Fifth, as we noted previously, our results reflect only thecurrent effects of institutional forces on information integration,whereas the ongoing transition in China means such effects likelywill change over time. A longitudinal study could investigate thedynamic nature of the effects of institutional forces and theirimpacts on SCM practices in China. Sixth, it would be worthexamining our research model in the context of global firms, whichare subject to the influences of various institutional forces.

9. Conclusion

We find that of the three institutional forces, governmentsupport and guanxi affect trust and thus information sharing andcollaborative planning in the context of China, in partial support ofthe effects of isomorphic pressures, as proposed by institutionaltheorists. Many prior studies, including those by Luk et al. (2008),Zaheer and Zaheer (2006), Lau et al. (2002), and Child and Tse(2001), suggest that the profile and effects of institutional forcesvary across countries; in contrast, we consider whether threeinstitutional forces vary across China’s unique institutionalenvironment. In the future, researchers should continue to takeappropriate institutional forces into account when they examineissues related to the implementation of various SCM practices,particularly in emerging countries.

Consistent with the TCA rationale, which suggests that firmscan employ hybrid governance mechanisms to safeguard theirspecific assets, we find that building trust with a supplier as agovernance tool leads to active information sharing and colla-borative planning. This finding parallels that offered by Dyer andChu (2003): trust in exchange relationships contributes to superiorinformation sharing and improves coordination and joint efforts tominimize inefficiencies.

Appendix A. Questionnaire Items

Legal protection (adapted from Child et al., 2003)

(LP1) The legal system protects our interests.

(LP2) The legal system prevents us from being cheated.

(LP3) The legal system ensures customers’ payment.

(LP4) The legal system ensures that we can get our money back.

Importance of guanxi (adapted from Child et al., 2003)

(IG1) Business in this industry depends on good connections.

(IG2) In this industry, guanxi is still very important.

(IG3) Guanxi is a requirement for success.

Government support

In the past 3 years, government and its bureaus:

(GS1) Implemented policies and special projects which benefit your company.

(GS2) Provided needed information to your company.

(GS3) Provided financial support to your company.

(GS4) Helped your company obtain resources.

S. Cai et al. / Journal of Operations Management 28 (2010) 257–268 267

Trust (adapted from Zaheer et al., 1998)

(TR1) This supplier is trustworthy.

(TR2) This supplier has always been evenhanded in its negotiations with us.

(TR3) This supplier never uses opportunities that arise to profit at our expense.

Information sharing (adapted from Heide and John, 1992)

(IS1) In this relationship, it is expected that any information that might

help the other party will be provided to them.

(IS2) It is expected that the parties will provide proprietary information if

it can help the other party.

(IS3) It is expected that we keep each other informed about events or

changes that may affect the other party.

(IS4) The parties regularly exchange information of supply and

demand forecast.

(IS5) The two parties exchange information frequently with each other.

Collaborative planning (adapted from Heide and John, 1990)

This supplier and our company make joint efforts in:

(CP1) Long-range planning for product development.

(CP2) Forecasting customers’ changing demands.

(CP3) Testing market acceptance of new products.

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