Relational contracts and value chain governance: exporter approaches to overcoming transaction costs in Rwanda's coffee sector

Purpose In developing countries, local buyers often rely on relational contracting based on reciprocity and trust. This paper analyzes relational contracting and global value chain (GVC) governance by focusing on how domestic and foreign coffee exporters in Rwanda confront challenges.Design/methodology/approach Semi-structured interviews were conducted with 25 representatives of Rwandan private, Rwandan cooperative-owned and foreign exporters, and four coffee sector stakeholders.Findings Foreign firms export most Rwandan coffee, and local exporters express concerns about their ability to compete. Rwandan exporters face challenges accessing capital, competing with foreign firms and managing high transaction costs. They use relational contracts to reduce transaction costs, and they benefit from a monopsony zoning regulation that reduces competition. Foreign exporters face regulatory challenges: a government-set coffee price and the zoning regulation. They vertically integrate to reduce costs and lock in suppliers through prefinancing.Research limitations/implications Future research should analyze differences between local and foreign exporters in other contexts to advance understanding of the different challenges faced and contracting approaches used.Originality/value Few GVC governance studies address the role of relational contracts in contexts where enforcement is costly. Considering relational contracts within GVCs can improve value chain analysis, specifically in the developing countries where many GVCs start.

Deals that start when you sign them

This essay explores six sentences from Oliver Williamson – five providing context and the sixth the central topic. Decades ago, Williamson asserted that: (a) ‘substantially the same factors’ (1973: 316) create governance issues not only within organizations but also in interactions between organizations; and (b) relational contracting might be useful in addressing these issues in both domains (1979, Figure II). More recently – in an informal conversation in 2002 – he suggested a perspective on relational contracting that appears valuable in both of these domains: relational contracts as ‘deals that start when you sign them’. The bulk of this essay explores past, present, and potential research on this perspective.

Deterrence and Restraint: Do Joint Military Exercises Escalate Conflict?

Multinational military exercises are among the most notable demonstrations of military cooperation and intent. On average, one is initiated every 8.9 days. But it has often been argued that joint military exercises (JMEs) increase the risk of war. Using a relational contracting approach, we claim that formal military alliances mediate the effect of JMEs. Exercises and alliances serve complementary functions: The former allows targeted responses to military provocations by adversaries, while the latter provides institutional constraints on partners and establishes a partnership’s overall strategic limitations. In combination, alliances dampen the conflict escalation effects of exercises, deterring adversaries while simultaneously restraining partners. We test this theory using a two-stage model on directed dyadic data of JMEs from 1973 through 2003. We find that JMEs in general do not escalate conflict, and that JMEs conducted with allies in particular reduce the probability of conflict escalation.

Team composition in relational contracting (RC) in large infrastructure projects: a Belbin’s team roles model approach

PurposeThe aim of this study is to broaden the understanding of the set of knowledge, skills, attributes and experience (KSAE) that teams should demonstrate and the necessary roles they need to play within the team in Relational Contracting (RC). This research seeks to answer three questions: first, what KSAEs are required in a team operating under RC, second, which of the identified KSAEs are more important to enable an integrated team to perform effectively and third, how do these required KSAEs correspond to the major role clusters identified in Belbin’s team role model?Design/methodology/approachIn-depth interviews with 25 experts and key management representatives in infrastructure construction in Australia were conducted to enable detailed discussion of the research questions.FindingsSixteen behavioural traits and four knowledge and experience areas were identified. The findings highlight that in RC, team members and especially leaders and managers need to be competent in people-oriented roles, above all others.Research limitations/implicationsThis research mainly captured the perspectives of personnel working in state government infrastructure departments. Further research is recommended to explore the perceptions of employees in private construction companies.Practical implicationsBy aligning the roles required for RC with the team role clusters of the Belbin’s team roles assessment tool, this study will be useful for identifying suitable members to form high-performance project teams.Originality/valueThe findings of this paper can inform government infrastructure organisations and construction companies as to which roles are more critical when selecting fit-for-purpose teams to successfully deliver large infrastructure projects procured under the RC method.

Collaborative Behavior in Relational Contracting Projects in Hong Kong—A Contractor’s Perspective

The construction industry in Hong Kong has adopted relational contracting (RC) as a way forward to address frequent conflicts in construction projects and to promote sustainable development. Despite this effort, adversarial behavior of project team members is still prevalent, stemming from conflicting agendas, which hinders the successful implementation of RC. There is a need to improve collaborative attitudes and behavior among project team members in RC projects, but there is still a lack of understanding of factors that can promote this inter-organizational collaboration. Therefore, using the theory of planned behavior, this research investigates factors that form relational attitudes, collaborative intentions, and collaborative behavior, and their relationships in RC projects in Hong Kong. Quantitative data were collected from experienced practitioners in RC projects and were analyzed using structural equation modeling (SEM). The results reveal that senior management commitment and relational norms are needed to nurture relational attitudes, which in turn influence the development of collaborative intentions. These intentions can eventually promote collaborative behavior, which is expressed by teamwork, affective trust, and extra-role behavior (striving beyond roles to maintain collaboration). The findings advance knowledge and contribute to practice by providing a structured process to nurture collaboration in RC projects for sustainable development.

Exit, Tweets, and Loyalty

Hirschman’s Exit, Voice, and Loyalty highlights the role of “voice” when individuals confront an unexpected deterioration in quality. Yet, voice has received little attention. To motivate our empirical analysis, we develop a simple model of voice as the equilibrium of a relational contract between customers and firms. We use data on 4 million tweets to or about US airlines to study the relationship between quality, voice, and market structure. Voice increases when quality deteriorates. This relationship is greater for airlines that operate a large share of flights in a market. Supplemental analyses support a relational contracting role for voice. (JEL D83, L15, L82, L93)

RELATIONAL CONTRACTING AND ITS COMBINATION WITH THE BIM METHODOLOGY IN MITIGATING ASYMMETRIC INFORMATION PROBLEMS IN CONSTRUCTION PROJECTS

Project management in the construction sector is a complex and uncertain process and companies tend to look for the lowest value in the procurement of services and materials. However, contractors do not share the necessary information with the contracted parties and thus give rise to the asymmetric information (AI) phenomenon. The aim of this study is to perform an analysis of the determining factors in the adoption of relational contracting (RC) in combination with Building Information Modelling (BIM) to reduce AI. The results of a questionnaire survey, which was e-mailed to 14 specialists with solid experience (over twenty years) and knowledge in construction projects, revealed that the probability of the AI phenomenon occurring in Portugal is very high, and its impact on construction projects is equally high. The results also show that RC in combination with the BIM methodology contributes very positively to the mitigation of AI problems in construction projects in Portugal. Approximately 85% of respondents consider that the government should seek to reduce AI in the public works sector through the use of RC and its combination with the BIM methodology in the Portuguese Public Contracts Code.