Assessing the Perception of Supply Chain Risk and Partnerships Using Importance-Performance Analysis Model: A Case Study of SMEs in China and Korea

Introduction

Development of offshore invest-ment and outsourcing during thecourse of globalization effortscomplicates supply chain opera-tions with increasing degrees ofuncertainty and mounting risk ofdoing business with partners inother countries. Risk managementbecomes one of the most importantissues for the chief executiveofficers in operating within a globalsupply chain (Childerhouse et al.,2003; Lee et al., 1997; Li & Hong,2007). Effective risk management

has become a challenge for manyorganizations operating supplychains (IBM, 2008; Sheffi, 2005;Stemmler, 2007). In many instances,capacity of risk managementdecides the level of competiti-veness of the participatingcompanies in supply chain.Companies are increasingly awareof potential added value of anintegrated risk management(Stemmler, 2007) in three levels ofrisk management: the applicationlevel, the organizational level, andthe inter-organizational level(Bandyopadhyay et al., 1999; Finch,2004).

There are many studies on supply chain performances but few of themattempt to measure the perception of partnership and risk onperformance and the importance of those perceptions to the supplychain. Perception of partnership and risk often affects performance. Thisstudy attempts to present empirical study results on the performance ofsupply chain partnerships and risk using the importance-performanceanalysis (IPA) model with samples from business establishments in smalland medium-size enterprises (SMEs) in China and Korea. This studyreviewed 198 valid returns (128 from Chinese firms and 70 from Koreanfirms, a return rate of 44%) and found there are significant differences inperception of performance and importance between the two countriesespecially in the supplier-customer relationship area. The findings raisesome useful implications and information for companies in both countriesto consider in building and maintaining a sustainable supply chain in thefuture. This study hopes to simulate additional discussions on this topicusing the IPA model.

Keywords: supply chain performance, supply chain risk, perception,IPA(Importance-Performance Analysis)

Assessing the Perceptionof Supply Chain Risk and Partnerships UsingImportance-PerformanceAnalysis Model: A Case Study of SMEs in China and Korea

110Supply Chain Forum An International Journal Vol. 15 - N°2 - 2014 www.supplychain-forum.com

Seock-Jin Hong KEDGE Business School,

Bordeaux, [email protected]

Ik-Whan G. KwonJohn Cook School of Business,

St. Louis University, U.S.A.

Jian LiSchool of Economy,

Ocean University of China

© Copyright KEDGE BSISSN print 1625-8312ISSN online1624-6039

An International JournalSupply Chain Forum

Frequent supply chain disruptionsfrom terrorist attacks (e.g., 9/11) ornatural disasters (e.g., theearthquake and tsunami in Japanand the flood in Bangkok in 2011,etc.) shifted the focus of attentionfrom passive to proactive vulne-rability management (Peck, 2007;Sheffi, 2005). The aftermath of2011’s Japanese earthquake andtsunami led to a rethinking ofsupply chain disruption from adifferent angle of risk management(Financial Times, 2012). The naturaldisaster is argued that thoseconsidering supply chainmanagement in general and riskmanagement in particular need toexpand their view to includedifferent types of disruptions. Manyrandom phenomena, such asearthquakes, floods, and accidents,have just as much impact on acompany as a terrorist action(Finch, 2004; Sheffi, 2005) orinteractive cultural factors (Peck,2007) in business environmentswith partners located all over theworld.

Recently, economic interdepen-dency between China and Koreahas been growing at such a rapidpace that a study is needed toassess whether such fast growth issustainable under the currentunderstanding of trade partnershipbetween these two countries,especially in small and medium-sizeenterprises (SMEs). For example,export from China to Koreaincreased from $38.65 billion in2005 to $86.43 billion in 2011, agrowth of 123.6% (Ministry ofCommerce, 2011). During the sameperiod, exports from Korea toChina increased from $61.92 billionto $134.2 billion, a growth of116.73%. Although the amount oftrade increases, many companies,especially SMEs, are experiencingsupply chain disruptions, delays,and other obstacles perhapsbecause of misunderstandingsand/or a lack of understanding ofthe foundation of supply chainprinciples (Kwon et al., 2011).

Accordingly, a study comparing thefundamental perceptions of supplychain operations between thesetwo countries may shed some lighton whether trade growth can be

sustainable without majordisruptions from misunder-standings of partner behaviors.This article is organized as follows:a literature review in section II ispresented with three majorconstructs in supply chainperception and performance (risk management, partnershipformation, and customer-supplierrelationship). In section III, themethodology will be discussedincluding survey instruments andmeasures of attributes. Results andanalysis will be presented insection IV. In section V, discussionsof the results will be presented andin section VI, conclusions,contributions, managerial implica-tions, and limitations of this studyare presented.

Literature Review

Perception by supply chainpartners on possible outcomesinfluences a great deal of supplychain optimization processes.Measuring a partner’s perception isnot an easy task because it involvesmany tangible and intangibleconstructs ranging from emotional(e.g., concept of trust) tocalculative and anticipatorydecision making (e.g., specific assetinvestment). Pre-planned riskmanagement and business disrup-tion certainly provide positiveimpressions to supply chainpartners. In addition, specificcommitments (such as asset-specific investment or human-specific alignment) by one tradingpartner to others may create theimpression that the trade between

these two partners is serious andsustainable. Finally, shared visionamong business partners maymake it easier for them toimplement common businessstrategies.

Perceptions and performanceunder supply chain risks

Measuring external risks: IBM (2008)divided supply chain models intofour categories: deterministicanalytical models, stochasticanalytical models, economicmodels, and simulation models.The four different approaches maybe useful for supply chain riskmanagement. The authors of thesemodels use an economic modelbased on buyer-supplier relation-ships. This model has a base indetermining financial risks (IBM,2008) as well as operational risksfor SMEs. Companies that haveadequate risk management plansrespond comparatively better thanthose without the plans (PriceWaterhouseCooper, 2008). Carterand Rogers (2008) provided acomprehensive study on sources ofsupply chain risks ranging fromnatural disasters to poorenvironmental and social perfor-mances. Accordingly, perception byone partner toward others in termsof performance will be favorable ifthe partner has a mutually agreed-on risk management plan in place.

Partner selection risk: Partnerselection is one of the most difficultbut important requirements toreduce the risk from partner. Manysupply chain formations failbecause of inadequate backgroundchecks of partners in importantareas such as financial health,skills, and organizational strength.Mentzer et al. (2001) suggest that asupply chain exists whether acompany actively manages it ornot. Supply chain partnershipmanagement influences not onlythe relationships quality with othermembers within the supply chainbut also the nature of efficiency andeffectiveness/responsiveness ofsupply chain activities andperformance. Chen and Paulraj(2004) discussed the measures of buyer-supplier relationshipsfrom the aspects of long-term

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Economicinterdependency

between China andKorea has been growing

at such a rapid pacethat a study is needed

to assess whether suchfast growth is

sustainable under thecurrent understandingof trade partnership

relationships, communication,cross-functional teams, andsupplier involvement. Thesestudies seem to suggest thatpartner selection becomes animportant parameter to avoid anyunpredictable risk and also seem tosuggest that perception becomesfavorable and subsequentperformance expectation becomespositive if one partner has doneadequate studies during thepartner selection process.

Business operation uncertainty:Synchronizing business plans withthat of a partner’s plan is not aneasy task; nevertheless, such jointbusiness planning is essential andcritical in many instances. Min andMentzer (2004) developed factorsrelated to partnership managementincluding agreed vision and goals,information sharing, risk and awardsharing, cooperation, processintegration, long-term relationship,and agreed supply chainleadership. All of the literaturesportray SCM practices from avariety of different perspectiveswith a common goal of ultimatelyimproving organizational perfor-mance. This study, therefore,considers supply chain partnershipmanagement practices as a multi-dimensional concept.

Perception and performance in partnership practice

Communication: Communication isone of the most important anduseful methods for building andsustaining relationships. If com-munication is regular, uninter-rupted, and open, supply chainpartners feel engaged and are ableto work as a single entity, are ableto better understand the needs ofthe end customer, can respond tomarket change with nimblenessand agility, and hence be able toreduce or even eliminate thebullwhip effect (Li et al., 2006;Mentzer et al., 2001; Narasimhan &Nair, 2005). It should be pointedout, however, that communicationdiffers from information sharing inthat communication often has afrequent and regular schedule andconsiders the strategic decisioninstead of the intricate informationshared by a complex data style.

Information sharing: Sharinginformation with supply chainpartners is a source of competitiveadvantage and critical to theefficiency and effectiveness of anysupply chain operation (Balsmeier& Voisin, 1996; Childerhouse &Towill, 2003; Kwon & Suh, 2004b;Stern et al., 1996). The sharing ofinformation creates an environ-ment in which the trust-buildingprocess becomes less challengingand reduces conflict that mightthreaten functional operations.Uninterrupted communication flowand effective information sharingare also a prerequisite forcommitment (Anderson & Weitz,1992; Goodman & Dion, 2001; Kwon& Suh, 2004a).

Contracts: A contract is a legalinstrument that explicitly definesthe terms of inter-organizationalagreements. Many researchershave discussed the importance ofcontracts for building trust andcreating a stable relationshipbetween supply chain partners(Handfield & Bechtel, 2002; Ring & Van de Ven, 1994). They suggest that although long-termrelationships may be based onspirit of collaboration, theexistence of preventative formalcontracts may help to improve thetrust level between partners. Sternet al. (1998) argue that suchcontractual safeguards areimportant in determining the levelof trust in which they help definethe nature of the relationshipbetween the partners from theoutset. According to one study,well-defined contracts mayimprove overall supply chainperformances (Kwon, 2008).Accordingly, it is a reasonableexpectation that contracts mayenhance perception on perfor-mance and importance.

Asset investment: Several studieshave found that increased levels ofasset specificity promote jointaction or continuity betweensupply chain partners. They provedthat the right investments permittighter integration and improve thecommunication and alignmentbetween supply chain partners(Narasimhan & Jayaram, 1998).Other recent works also support

the argument that once companiesmake the financial commitment tosupport a customer, they followwith dedicated account represen-tatives and engineers who workclosely and are willing to collocateto the customer’s location(Handfield & Bechtel, 2002; Mentzeret al., 2001). It is expected,therefore, that high performance isanticipated out of sucharrangement.

Human-asset specificity: A success-ful execution of supply chainoperations also needs similarhuman-asset specificity for specifictactical issues, although suchneeds may not be as encompassingof the entire supply chain. Monczkaet al. (1998), for example, argue ahuman-asset specificity approachto be the standard means of makingstrategic decisions that arecomplex and/or large scale.Johnson (1999) also points out thatin implementing a strategicpartnering orientation, a companyis so dependent on the partnershipthat it cannot think of developing astrategy without its partner.Therefore, strategic partnershipsrequire each partner to participatein inter-firm strategic human-assetspecificity.

Operational cooperation: Accordingto Anderson and Narus (1990),operational cooperation refers tosituations in which companieswork together to achieve mutuallyagreed-on goals. Although partici-pants in a strategic partnership usemore joint planning and controlthrough a strategic interface team,it is easier for partners to establishjoint objectives and performancemeasures. Because partnership ties the collaborating companies’forecasting and materials manage-ment activities closely together asimprinted in the principles ofcollaborative planning , forecasting,and replenishment, total systeminventories can often berationalized, improving return onworking capital for both partners.

Strategic alliance: Similar to otherstudies (Closs & Mollenkopf, 2004;Lambert et al., 1996), we definestrategic alliance as a businessrelationship in which two or more

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independent organizations share acommon vision of the total valuecreation process and clearresponsibility and willingly modifytheir business objectives andpractices to help achieve long-termgoals and objectives. Partners in astrategic alliance work closelytogether for a commonly definedset of goals and try to minimize oreliminate duplicated processes byconsidering each other as anextension of their own enterprise(Balsmeier & Voisin, 1996; Lambertet al., 1996). In such anenvironment, perception of highperformance is expected.

Top managers’ involvement: Topmanagers’ understanding of thespecific benefits of and support forinformation sharing with supplychain partners is one of the mostimportant factors that yieldstangible results (Li & Lin, 2006;Poirier et al., 2010). A large numberof researchers have regarded topmanagement support andinvolvement as a critical role inshaping an organization’s valuesand orientation (Andraski, 1998;Hambrick & Mason, 1984; Li & Lin,2006).

Perception and performance in acustomer-supplier relationship

The relationship level, especiallyfor the bilateral customer-supplierrelationship, is critical to thediscussion of organizationalpartnerships and competition(Ellram, 1990; Harland, 1996). Someevidence shows that the currenttrend of customer-supplierrelationship has evolved toward amore collaborative and integratedpartnering form based oncooperation, mutual benefit, trust,and relational exchange in order torespond to growing competition insupply chain management (Gules &Burgess, 1996; Imrie & Morris, 1992;Kwon et al., 2011). Imrie and Morris(1992) suggest that suppliers cangain benefits if they are conformingto the business skills and expertiseof their customer partners under acollaborative model.

However, the relationship betweensuppliers and customers fromdifferent countries and cultures is

the main source of supply chainrisks. Schonsleben (2000) evensuggested that traditionalcustomer-supplier relationshipslead to risks, such as poor quality,longer delivery times, and erraticlead time. Sharing both risks andrewards among the members of thesupply chain community is now thenorm rather than the exception.Companies should focus not onlyon their own supply chain risks butalso the risks of their partnermembers (Cooper et al., 1997;Mentzer et al., 2001; Souter, 2000).

Information quality: Informationquality is a key ingredient forassessing the strength of partnerrelationships (Donlon, 1996). Thekey to seamless supply chainoperations is using the informationon a real-time basis and sharing itwith other parties in the supplychain, which can speed up theinformation flow, improving theefficiency and effectiveness of thesupply chain optimization process(Li et al., 2006). Therefore, high-quality information will bringcompetitive advantage to theorganization in the long run.According to Balsmeier (1996) andLi et al. (2006), information qualityincludes aspects such as theaccuracy, timeliness, adequacy, and credibility of informationexchanged. It is, therefore, arguedthat high-quality informationenhances performance and theimportance of a relationship.

Interdependence: There is abundantempirical research illustratinginter-reliance as a key dimension of effective supply chainrelationships. According toGundlach and Cadotte (1994), bothparties in exchange relationshipsmay be dependent on each other tosome degree in a supply chainenvironment. Mohr and Nevin(1990) pointed out that thereciprocal dependent structurecharacterizes the level ofinterdependence in the relationshipand has important implications forinteraction. The deeper theinterdependence, the higher theexpectation of high supply chainperformance.

Commitment: Commitment refers tothe willingness of trading partnersto exert effort to achieve mutuallyestablished goals. Gundlach et al.(1995) suggest that commitmentindicates a future orientation inwhich companies attempt to builda relationship that can be sustainedin the face of unanticipatedproblems or incidents. Commit-ment is an enduring desire tomaintain a valued relationship. Li and Lin (2006) identifiedcommitment as the variable thatdiscriminates the continuity ofrelationships. Once a partner feelsa strong commitment from othertrading partner, perception andperformance may be enhanced.

Trust: Trust has been considered tobe the essential factor in mostproductive partner relationships.Trust is among the most frequentlycited dimensions of relationships inthe literature and has been definedas the willingness to rely on atrading partner in whom one hasconfidence (Anderson & Narus,1990; Balsmeier & Voisin, 1996;Mentzer et al., 2000). Parties whotrust one another can find ways towork out difficulties such as power,conflict, and lower profitability(Hong et al., 2013; Kwon et al., 2011;Williamson, 1985).

Shared vision: Shared visionbetween business partners isdefined as the degree of similarityin the pattern of shared values and beliefs between partners(Childerhouse & Towill, 2003;Handfield & Bechtel, 2002). It isobvious that supply chainmembers with similar organiza-tional cultures should be morewilling to trust their partners.Therefore in this study, sharedvision is the extent to whichpartners have beliefs in commonabout what behaviors, goals, and policies are important orunimportant, appropriate orinappropriate, and right or wrong.

In summary, these dimensionsreinforce each other in terms ofenhanced partnering relationships.In an existing relationship, all ofthese dimensions will be positivelycorrelated and are indicators ofsupply chain partnership quality. It

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is acknowledged that there may besome other variables that couldpossibly be included in the supplychain partnering process but weposit that our conceptualization isbalanced in terms of parsimonyand comprehensiveness.

Methodology

Survey instrument

Our survey instrument wasdesigned based on attributes andconstructs discussed in thepreceding section (See Appendixfor the instrument and symbolsused). A five-point Likert scale wasused in measuring the numericalscores as shown in the surveyinstrument.

Measures

A survey of 450 instruments wasmailed to SMEs that have beenengaged in trading betweenQingdao, China, and Incheon, Korea(South), from July to October 2007.1

One hundred ninety-eight (198)valid returns were received (44%).The mailing and follow-upinterviews were conducted incooperation with the localindustrial association (LogisticsAssociation of Qingdao, China) anda local university (Ocean Universityof China).

The importance-performanceanalysis (IPA) technique originallydeveloped by Hemmasi et al. (1995)is used in this study to identify thedifferent perceptions betweenChinese and Korean companies inthe three categories discussed insection II. The IPA technique wasoriginally developed to assessservice quality using a perception-importance diagram creating fourdimensions (quadrants). The fourquadrants are constructed basedon the mean scores of performanceand importance ratings. The IPAtechnique was deployed on thethree constructs (supply chain risk, partnership practice, andcustomer-supplier relationship)with three variables in supply chainrisk, eight in partnership practices,and five in relationship construct.

In the IPA grid, the X-axisrepresents the perception ofperformance scores relating to theconstruct’s current level. The Y-axis represents the importancescores relating to companies’perceptions of their futureperformance. Quadrant I is markedas low performance but highlyimportant and as such is called“concentrate here.” Quadrant II hasa high importance and a highperformance rating and is called as“keep up the good work.” QuadrantIII has a low performance and lowimportance (low priority) rating.Finally, quadrant IV has a highperformance but a low importance(“possible overkill”) rating,meaning resources are beingwasted.

In this study, the items (variables)in three constructs are measuredon a 1 to 5 scale that measures thecurrent level of collaborativepartnering practice selection. Ahigher score than the mean axis indicates higher level ofcollaboration practice (see Figure 1).

Results and Analysis

Table 1 shows descriptiveinformation on 198 returnsconsisting of 128 (64.6%) fromChinese respondents and 70(35.4%) from Korean respondents.The great majority of respondents

were SMEs with the annual revenueof less than US$20 million. Morethan half of the companies havetwo to five major partners in thepartnering country (China orKorea) and have been involved in arelationship with their partners for6 to 10 years. A majority of therespondents are managers ordirectors in both countries, andtheir major business areinternational trade such asimportation and exportation.

Table 2 shows the mean scores ofthe constructs’ current level andthe importance for futureimprovement for Chinese andKorean companies in relation toperformance and importance. ForChinese companies, the meanimportance rating for the pooleddata was 3.41 and the meanperformance rating was 3.09. Thecorresponding information forKorean companies was 3.34 and3.24, respectively.

The value (score) for each variableis mapped in the IPA chart asshown in Figure 2A for returns fromChina and Figure 2B for returnsfrom Korea.

114Supply Chain Forum An International Journal Vol. 15 - N°2 - 2014 www.supplychain-forum.com

!

!

!!""##$$%%##&&''())Concentrate HereHigh ImportanceLow Performance

!!""##$$%%##&&''(**Low Priority

Low ImportanceLow Performance

1 51

5

IMPO

RT

AN

CE

PERFORMANCE

!!""##$$%%##&&''(++Keep Up the Good Work

High ImportanceHigh Performance

!!""##$$%%##&&''(,,Possible OverkillLow Importance

High Performance

!!""##$$%%##&&''())Concentrate HereHigh ImportanceLow Performance

!!""##$$%%##&&''(**Low Priority

Low ImportanceLow Performance

1 51

5

IMPO

RT

AN

CE

PERFORMANCE

!!""##$$%%##&&''(++Keep Up the Good Work

High ImportanceHigh Performance

!!""##$$%%##&&''(,,Possible OverkillLow Importance

High Performance

!

Figure 1IPA's Four Quadrants

1. The survey was designed for the study of Li(2007) and the authors used the same data forthis study.

115Supply Chain Forum An International Journal Vol. 15 - N°2 - 2014 www.supplychain-forum.com

!

Classification China Korea

Title of Respondents

CEO level 16 3

Vice president level 21 13

Director/manager Level 71 43

Other 20 11

Subtotal 128 70

Main Business Area

Manufacturing 12 7

International trade business 100 52

3PLs (warehouse, transportation) 16 11

Subtotal 128 70

Annual Gross Sales

Less than 4 million USD 38 19

4–20 million USD 68 34

20–40 million USD 13 10

More than 40 million USD 9 7

Subtotal 128 70

Number of Partners in China

or Korea

1 company 36 17

2–5 companies 65 36

More than 5 companies 27 17

Subtotal 128 70

Length of the Relationship

Less than 2 years 24 6

2–5 years 12 6

6–10 years 81 44

Over 10 years 26 14

Subtotal 128 70

Table 1Descriptive Statistics of Collected Data

The purpose of using the IPA modelin this study is to see how supplychain partners in one countryperceive each event or action oftheir partners in the other countryin a common plane. Ideal situationscall for either similar or the same

patterns of location in eachquadrant by two trading partners,which signals two supply chainpartners perceiving each importantevent similarly. Such a similarpattern implies a smoothimplementation of supply chain

operational agreements. However,different patterns of event locations(in the quadrant) imply the twosides have divergent expectationson performance and importance,which may cause some concernsabout future supply chain disruption.

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!

!

Item China Korea

Importance Performance Importance Performance

SC external risk (SCR 1) 2.98 3.74 3.38 3.44

Partner selection risk (SCR2) 3.57 3.06 3.71 3.42

Business operation uncertainty (SCR3) 3.81 2.83 3.63 3.03

Supply Chain Risk 3.45 3.21 3.57 3.30

Communication (PMP1) 3.50 3.28 3.09 3.34

Information management (PMP2) 3.33 2.98 3.13 3.28

Contract (PMP3) 3.48 3.26 3.58 3.50

Asset investment (PMP4) 2.56 2.06 3.06 2.88

Human-specific assets (PMP5) 3.22 2.94 3.44 3.06

Cooperation program (PMP6) 3.39 2.39 2.97 3.06

Human-specific alignment (PMP7) 3.04 2.78 3.58 3.17

Top manager support (PMP8) 3.56 3.81 3.38 3.54

Partnership practices 3.26 2.94 3.28 3.23

Information quality (PRQ1) 3.56 3.07 3.34 3.38

Interdependence (PRQ2) 3.44 3.15 3.50 3.25

Commitment (PRQ3) 3.56 3.31 3.22 3.41

Trust (PRQ4) 3.75 3.33 3.13 3.06

Shared vision (PRQ5) 3.81 3.37 3.25 2.96

Customer-Supplier Relationship 3.62 3.25 3.29 3.21

Total Average 3.41 3.09 3.34 3.24

!

Table 2Mean of Importance and Performance of SCM Attributes; Inputs for IPA Mapping

As shown in Figures 2A and 2B,Chinese and Korean respondentsseem to have different perceptionsof their supply chain operations.More Chinese respondents thanKorean respondents seem toportray the Korean partners asoverkill in quadrant 4 in twocustomer-supplier relationships(PR01 and PR03) and twopartnership practices (PMP01 and

(PMP02), whereas the Koreanrespondents regard their Chinesecounterparts overkilling in only onearea (SCR01). It is also interestingto see more Korean respondentsconsider their Chinese counterpartas doing well (quadrant 2) inpartnership practices (PR02, PR03,PR04, and PR05) and customer-supplier relationships (PMP01,PMP03, and PMP08), whereas the

Chinese respondents consider theircounterparts doing well in supplychain risk management (SCR 01 andSCR02).

In addition, the Koreanrespondents position partnerselection risk (SCR2) andinformation quality (PRQ1) inquadrant 1 (low performance buthighly important) for the Chinese

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SCR1

SCR3

PMP4

PMP5

PMP6

PMP7

PRQ2

PRQ4PRQ5

SCR2PMP1

PMP2

PMP3 PMP8PRQ1

PRQ3

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

2 2.2 2.4 2.6 2.8 3 3.2 3.4 3.6 3.8 4

Pefomance

Importance

!

!

!

Figure 2A IPA for Chinese Companies (Source: Li, 2007)

!

!

SCR1

SCR2

SCR3

PMP1

PMP3

PMP4

PMP5

PMP6

PMP7

PRQ2

PRQ3

PRQ4

PRQ5

PMP2

PMP8

PRQ1

2.7

2.9

3.1

3.3

3.5

3.7

3.9

2.8 2.9 3 3.1 3.2 3.3 3.4 3.5 3.6

Performance

Importance

!

Figure 2B IPA Grid for Korean Companies (Source: Li, 2007)

companies. This indicate that theKorean consider their Chinesepartners as doing poorly in thesetwo areas and need to improvetheir performances in the future.The high rank in importance andlow rank in performance of SCR2may be because of a relatively low supply chain managementexperience and techniques inChinese companies. Meanwhile, thehigh rank of importance and lowrank performance of PRQ1 shouldbe attributable to a low level ofinformation infrastructures andsupply chain information systemquality in China.

As for Chinese companies, theKorean trading partners listedasset investment (PMP04), human-specific assets (PMP5), andalignment (PMP7) in quadrant 3(low performance and lowimportance). It may indicate thatthe Korean partners feel theChinese trading partners do notprovide satisfactory arrangementsin specific asset investment,human-specific investment, andalignment to them. Human-assetspecificity is important foroperational partnering relationshipmaintenance (Handfield & Bechtel,2002) and asset-specific investmentimproves trust and commitment(Kwon & Suh, 2004a, 2004b).Meanwhile, strategically alignedorganizations can work closelytogether and eliminate wastefultime and efforts (Balsmeier &Voisin, 1996). Because assetinvestments and human-specificassets are the two prime factors ofpartnership management practices,efforts should be directed topromote them in a timely manner.

It is interesting to note that twovariables in partnership practiceand one variable in customer-supplier relationship arepositioned in the same quadrant 2(keep up the good work) as shownin Figures 2A and 2B, contract(PMP3), top manager support(PMP8), and interdependence(PRQ2). Both Korean and Chinesepartners consider meeting anexpectations of customer-supplierrelationships and partnershipmanagement to be satisfactory. Itindicated that both Chinese and

Korean companies not onlyconsider these three areasimportant but also, morenoteworthy, are reasonablysatisfied with the performances bytheir counterparts in these threeareas.

With respect to contracts (PMP3),both Chinese and Koreancompanies tend to build legalsystems to delineate theirrespectful roles and responsibilitiesfrom the inception of their businesspartnership process and theninstitutionalize the legalinstruments (Handfield & Bechtel,2002). With respect to top managersupport (PMP8), the studyindicated that top managers ofboth Chinese and Koreancompanies recognize this to be oneof the most important drivers forsupply chain collaboration.Concerning interdependence(PRQ2), a close geographicalproximity of the countries andsimilar organizational size (smalland medium) may compel bothsides to feel “bonded” together tothe point that “we need you tosurvive.” Both partners feel as“one,” as shown in the samequadrant.

For Chinese companies, in additionto the four common variables justdescribed, communication (PMP1),commitment (PRQ3), trust (PRQ4),and shared vision (PRQ5) were alsolocated in quadrant 2 (keep upgood work). Communication canbuild and improve partneringrelationships to minimize thenegative impact of the bullwhipeffect (Li et al., 2006; Mentzer et al.,2001; Narasimhan & Nair, 2005).Having a diversified communica-tion system is one of the key pointsto promote efficiency and effectivesupply chain collaboration. TheKorean partners consider theirChinese counterparts are doingwell in these four areas, such ascommunication, commitment, trustand shared vision.

Commitment and trust has beenconsidered by many researchers tobe the essential factors in buildingcollaborative partner relation-ships (Anderson & Narus, 1990;Balsmeier & Voisin, 1996; Hong et

al., 2013; Mentzer et al., 2000).Meanwhile, shared vision isconsidered to be the importantfoundation of high-quality partne-ring relationships (Tan et al., 2002).These three factors, with a meanrating of 3.56, 3.75, and 3.81,respectively, appeared to haverelatively important roles forChinese companies in buildingquality relationships. Chinesecompanies hold the perception thatthey have been doing well in theseareas with their partners. In thefuture, efforts should bemaintained continuously on thesefactors to uphold the highperformance of a partneringrelationship.

For Korean companies, in additionto the three previously mentionedmutual factors, the other twosupply chain risk constructs,external risks (SCR1) and partnerselection risks (SCR2), were alsolocated in possible overkillquadrant 4 in Figure 2B. Thisindicates that Korean companiesconsider supply chain riskmanagement to be the mostimportant supply chainmanagement area, with a meanrating of 3.38, 3.71, and 3.63,respectively, in which partnerselection risks (SCR2) was the topcriterion. It also shows that notunlike business operationuncertainty (SCR3), Koreancompanies have achieved arelatively high performance insupply chain external risks (SCR1)and partner selection risks (SCR2).Because Korean companiesemphasize supply chain riskfactors, resources should bedirected to improving andmaintaining the performance ofsupply chain risk management tominimize risks and uncertaintystemmed from external and internalsupply chain risks. In addition,information quality (PRQ1) wasalso identified in this quadrant.Compared with Chinesecompanies, the relatively highperformance of Korean companiesin this area implies that therelevant high level of IT systemplatforms and applications are inplace in Korean companies.

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As for high importance and goodperformance (quadrant 2), bothChinese and Korean companiescontinuously improve all factorslocated in this quadrant. Thisquadrant identifies those factors inwhich companies are performingadequately in both dimensions(performance and importance). Forboth Chinese and Koreancompanies, two mutual factors,asset investment (PMP4) andcooperation program (PMP6), wereidentified in this quadrant. Assetinvestment and cooperationprograms were studied by previousresearch and determined to beeffective measures to promote jointaction and mutual goals betweensupply chain partners in internalrelationships (Anderson & Narus,1990; Tompkins & Ang, 1993).

For Chinese companies, in additionto these two factors, informationmanagement (PMP2), human-specific assets (PMP5), andalignment (PMP7) were positionedin the low-priority quadrant 1. Thelow performance of informationmanagement should be attributedto the relative low level of ITinfrastructures and IT systemapplications in China. However,similar to human assets andalignment discussed previously,more attention should be focusedon information management to facethe future knowledge economy eraand global competition.

For Korean companies, trust(PRQ4), and shared vision (PRQ5)were also located in the low-priority quadrant 3 in contrast toChinese companies, whopositioned these two factors inkeep-up-the-good-work quadrant 2.Although placing these twoimportant variables in a low-priority quadrant by Koreancompanies seems to be odd,Korean companies have paid muchbetter attention and have givenmore effort in partner selection(SCR2) and other risk managementareas (SCR1 and SCR3) than theirChinese partners, who have arelatively low supply chainperception and managementtechniques, and therefore, it isunderstandable why suchseemingly important factors are

listed in a low-priority quadrant.Therefore, Korean companiesshould pay more attention toenhancing the importance of trustand shared vision and improvingthe partnering relationship withChinese companies in the future.

For Chinese companies, only onefactor, SC external risks (SCR1), wasidentified as low importance withrelatively high performance locatedin the possible-overkill quadrant. Itcould imply that Chinesecompanies were currently satisfiedwith external businessenvironments, such as politicalsituations, economy systems,national security, and even naturalenvironments, in both China andKorea.

For Korean companies, commu-nication (PMP1), informationmanagement (PMP2), and commit-ment (PRQ3) were identified in thisquadrant. This indicates thatKorean companies have achievedrelatively high performance inthese three supply chainpartnership management areaseven though they did not rate themaccordingly in importance ranking.As discussed, both communication(PMP1) and commitment (PRQ3)are the essential factors to buildand improve collaborative supplychain relationships. Therefore,although Korean companies havedone some good work with higherperformance scores than theirChinese partners, it does not meanthat they should reduce theirefforts in these two areas. On thecontrary, Korean companies in thefuture should pay closer attentionto communication and commit-ment with their Chinese partners,who attach more weight andimportance to these factors thanthe traditional Chinese commercialculture, so that the partnerrelationships between them can becollaborative and sustainable.

As for information sharing andmanagement (PMP2), this wasidentified as relative lowimportance by both Chinese andKorean companies. Chinese andKorean companies should changetheir perception on informationsharing and management and pay

more attention to raising itsimportance because it isconsidered to be critical to theefficiency, effectiveness, andcompetitive advantages of anysupply chain (Balsmeier & Voisin,1996; Global Logistics ResearchTeam, 1995) and the essentialfoundation for buildingrelationships in terms ofcommunication, trust, andcommitment (Narasimhan & Nair,2005).

Discussions

According to the IPA results inFigures 2A and 2B and in Table 2, itis obvious that Chinese companiesshould emphasize improvingpartner selection risks (SCR2),business operation uncertainties(SCR3) of supply chain risk factors,and information quality (PQR1) ofpartnering relationship qualityfactors and make someimprovement and remedial actions;whereas Korean companies shouldemphasize improving businessoperation uncertainty (SCR3),human-specific assets (PMP5), andalignment (PMP7). Comparingimportance and performance,companies can invest and applymost of their resources to improveand enhance specific supply chainmanagement strategies and tactics.IPA maps in Figures 2A and 2B arerearranged in a tabular format toclearly illustrate whether variablesunder each construct are located inthe same quadrant or in differentareas in the maps. The results areshown in Table 3.

As shown in Table 3, 8 (SCR1, SCR2,PMP1, PMP2, PMP5, PMP7, PRQ1,and PRQ3-5) out of 16 factors havedifferent locations (quadrants).Only six factors (SCR3, PMP3,PMP4, PMP6, PMP8, and PRQ2) arelocated in the same quadrants.Four out of the five factors (80%) incustomer-supplier relationshipsshow different locations, signalingbasic different perceptions ofperformance and importance. Suchdivergent perception indicates thatChinese and Korean companieshold different supply chainmanagement perceptions and havedifferent supply chain managementstrategies, even though these two

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countries were thought to have asimilar perception and strategybecause of their close geographicproximity, historical, cultural, andeconomic relationships.

It should be pointed out, however,that such differences do not implythe right or the wrong ways ofhandling supply chain risk andpartnership management for thesetwo countries. The differentperceptions and subsequent supplychain implementation strategiesbetween them imply thatcompanies in these two countries

should pay more attention to theirpartners’ positions when they buildand maintain relationships witheach other.

Collaboration is not unique to thesupply chain risk managementbetween Chinese and Koreancompanies. By identifying partners’needs and expectations, companieswill be able to better prioritizetasks, allocate their resources, anddevelop tailor-made marketingstrategies for their target segments.To evaluate supply chain riskmanagement performance from the

total supply chain point of viewwith their partners would improvesupply chain managers’ under-standing of supply chain risk andpartnership and ultimately lead tolong-term, sustainable supply chaincollaboration.

According to Alston (1989), Chinesebusiness behavior revolves aroundguanxi or personal relations.Guthrie (2002) and Clegg et al.(2007) researched that guanxi’simpact on business is decreasing.Factors such as globalization,information accessibility, and

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!

Code Item China Korea Remark

SCR1 SC external risks IV II Different

SCR2 Partner selection risk I II Different

SCR3 Business operation uncertainty I I Same

PMP1 Communication II IV Different

PMP2 Information management III IV Different

PMP3 Contract II II Same

PMP4 Asset investment III III Same

PMP5 Human-specific assets III I Different

PMP6 Cooperation III III Same

PMP7 Alignment III I Different

PMP8 Top management support II II Same

PRQ1 Information quality I IV Different

PRQ2 Interdependence II II Same

PRQ3 Commitment II IV Different

PRQ4 Trust II III Different

PRQ5 Shared vision II III Different

Table 3Difference of IPA Results for Chinese and Korean Companies

(Source: Li, 2007)

regulations have made guanxi lessimportant. However, this studyrevealed similar phenomenonpointed out by Alston (1999), Yeungand Tung (1996), and Luo (2007).The Chinese respondent focusesmore on relationships thanpractices. Guanxi relationships arebasically more utilitarian thanemotional. Among relationshipconstructs, Chinese did better oninformation exchange factors.

Conclusion, Contributions,Managerial Implications, and Limitations

Supply chain management is rootedin a solid foundation of informationsharing and sharing of rewards andrisks. Building a solid foundationrequires a deep understanding ofsupply chain attributes to enhancethe outcomes. This study revealsthat there are still manydisagreements between two supplychain partners (Chinese andKorean) in important attributesthat makes supply chainoptimization more transparent andeffective. Of particular concern isthe number of mismatchedperceptions by the two partners incustomer-supplier relationships.The two parties (Chinese andKorean) disagree about 80% ofimportant attributes such asinformation quality, trust,commitment, and shared vision inassessing supply chain perceptionand importance. This studysuggests a lot more work needs tobe done to improve supply chainperformance.

This study, unlike others thatemploy unitary respondent surveysto collect information, used twosupply chain partners as a sourceof information. The surveyinstrument paired two supply chainpartners in two different countriesand solicited their perception oftheir counterparts in 16 areas. Assuch, this study narrowed therespondent’s opinion to theirpartners only and not to a generalperception of their partners.Accordingly, information extractedfrom the survey is more pertinentand focused on the issues ofinterests. In addition, as far as weknow, this study is the first to use

the IPA technique as a basis ofassessing collaborative supplychain operations in performanceand importance. The jury is still outwhether this approach indeed addsany value to the body of knowledgein this field.

Results from this study appear tosuggest that before engaging inserious supply chain executionplanning, it is desirable tostrengthen the understanding ofperception and importance of eachpartner and every attribute thatboth parties agree to achieve. Thisstudy finds that supplier-customerrelationships are a major source ofmisunderstanding of potentialdisruptions. It is, therefore, welladvised for supply chain officers tolay a foundation for clearly defined,transparent understanding in theircustomer-supplier relationships.

This study limited its geographicalscope to Qingdao area in China andIncheon in Korea with primarilySMEs in trading, which may nothave as sophisticated supply chain infrastructure as largemultinational companies. Some ofthe findings from this study,therefore, may not be applicable tothe general population. In addition,although selections of attributesunder the three constructs werebased on a careful literature review,we are not fully confident whetherthe selected attributes arecomprehensive for the object ofthis article. Perhaps this article canbring forth serious discussion anddebate about the selection ofrelevant attributes in futurestudies.

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About the authors

Seock-Jin Hong, PhD, is a professor at theKEDGE Business School in Bordeaux, France.Prior to joining KEDGE, Professor Hong wasan associate professor and deputy director atthe Graduate School of Logistics at theUniversity of Incheon. Professor Hong was aresearch associate at the air transportdepartment of the Korea Transport Institute(KOTI) and an assistant general manager inKorean Airlines Seoul. His research interestsinclude air transport and cargo supply chainand transport, supply chain riskmanagements, and lean logistics, as well asthe tourism industry. His papers haveappeared in various journals, such as World

Review of Intermodal Transportation Research,

Transport Policy Studies, International Journal

of Electronic Customer Relationship

Management, and Korea Logistics Review.

Ik-Whan G. Kwon, PhD, is a professor ofoperations management at the John CookSchool of Business, St. Louis University. He isalso a director of the Center for Supply ChainManagement Studies at the John Cook Schoolof Business since 1998. His research interestsinclude supply chain strategies, riskmanagement, and collaboration in supplychain operations. He was twice a FulbrightScholar in Korea and serves on variousacademic supply chain management journalsas a reviewer including International Journal

of Business Innovation and Research; as a

member of the editorial board for Logistics

and International Journal of Procurement

Management; and as a member of the review

board for Supply Chain Management: An

International Journal, International Journal of

Physical Distribution, and Supply Chain

Management. He is also a member of theadvisory board at Business InnovativeResearch Center (BIRC) at the University ofMassachusetts at Dartmouth.

Jian Li, PhD, is an associate professor oflogistics management at the School ofEconomy, Ocean University of China. Hefinished his PhD degree at the University ofIncheon, South Korea, and was a visitingscholar at the University of Rhode Island,United States. He is a member of theNortheast Decision Sciences Institute in theUnited States and Korean association ofshipping and logistics. He also serves onvarious academic supply chain managementand logistics management journals, such as amember of the editorial board for the Asian

Journal of Shipping and Logistics and Logistics

and Supply Chain Management, and as areviewer for Sciencepaper Online. Hisresearch interests include internationalsupply chain management, port economy andlogistics, and collaboration in supply chainmanagement.

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Appendix

Constructs for Supply Chain Risks, partnership, Relationship Quality and Performance

1. Supply Chain Risk FactorsSupply Chain External Risks (SCR01)Political instability, civil unrest, or other socio-political crisesInternational terror attacksNatural disastersDiseases or epidemicsMarket system immature

Laggard logistics infrastructure developmentPartner Selection Risk (SCR02)Production capabilities riskManagement capabilities risk Market reputation problems Cultural compatibility riskFinancial inability Human resource scarcity

Business Operation Uncertainty (SCR03) Our partners' engineering level is unpredictable.Our partners' product quality is unpredictable.Our partners' delivery time can easily go wrong.Our partners' product price always varies.

2. Supply Chain Partnership Management PracticeCommunication (PMP01)We meet frequently with our partners.We have a formal and flexible communication system with our partners.We can discuss anything with our partners concerning our mutual benefit.We can always resolve conflicts through communication with our partners.

Information Management (PMP02)We have an advanced information-exchanging system with our partners.We and our partners can exchange information easily and safely.We and our partners inform each other in advance of changing needs.We and our partners are likely to share proprietary information with each other if it can help the other party.We and our partners can keep the confidentiality of our mutual propriety information.

Contract (PMP03)We consider the contract or agreement to be an important way to do business with our partners.We signed a detailed legal contract with our partners.We signed a relatively long-term contract with our partners.

Asset Investment (PMP04)We have dedicated or reserved equipment to maintain the business relationship with our partners.We have purchased specialized equipment to maintain the business relationship with our partners.

Human-specific Assets (PMP05)We and our partner’s manufacturing personnel regularly visit each other’s facility.We and our partners have built a cooperative team to maintain our relationship.

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Cooperation (PMP06)We cooperate with our partners with respect to product design.We cooperate with our partners with respect to process design.We cooperate with our partners with respect to quality management.We cooperate with our partners with respect to forecasting and planning.

Alignment (PMP07)Our main partners are our strategically aligned partners.We allocate profit evenly with our aligned partners.We have exclusive strategic partnering alignment with our partners.

Top Manager Support (PMP08)Top management considers the relationship between us and our partners to be important.Top management supports our collaboration with the resources we need.Top management regards SCM as a high-priority item.

3. Partnering Relationship QualityInformation Quality (PRQ01)We exchange information with our partners in a timely fashion.We exchange information with our partners accurately.We exchange information with our partners completely.

Interdependence (PRQ02)It would be difficult to find a new partner if we lose this business.We do not want to replace partners with other companies.We and our partners rely heavily on each other to achieve our business objectives.

Commitment (PRQ03)We and our partners always try to keep each other’s promises.We have invested a lot of effort in the relationship with our partners.We and our partners have made sacrifices for each other in the past.We and our partners are concerned about each other’s welfare.

Trust (PRQ04)Our partners have been open and honest in dealing with us.We feel that we can trust our partners completely.Our partners respect the confidentiality of the information they receive from us.Our transactions with trading partners do not have to be closely supervised.

Shared Vision (PRQ05)We and our partners share mutual understanding about our SCM goals.We and our partners share mutual understanding about the importance of supply chain collaboration.We and our partners share mutual understanding about our strategic goals.

4. SCM PerformanceOrganization PerformanceMarket shareReturn on investmentGrowth of salesProfit margin on sales

SCM improvementImprovement of SC responsivenessImprovement of SC flexibilityImprovement of SC total costImprovement of SC innovationImprovement of SC securityImprovement of customer satisfaction