The Determinants and Benefits of Inter-organization Performance Measurement Alignment among Chinese Suppliers

The purpose of this project is to enhance our understanding and the use of performancemeasurement systems in business to business (B2B) supply chains in China.The role of the performance measurement system in a supplying firm is, in part, supposed tomirror the aspects of performance (i.e., technology, cost, quality, delivery, and service)deemed important by their customers. To learn and improve, suppliers gain explicit feedbackfrom their customers through evaluation reports, face-to-face meetings, factory visits,assessment forms, and phone calls with customers. In the absence of such feedback, asupplier would do well to invest in and improve their own performance measurement systemas a substitute. We refer to this choice as performance measurement alignment.Understanding how suppliers respond to customers is essential and the performanceconsequences from the supplier’s use of performance measurement systems is consideredvery important towards the development of modern management systems in Chinese firms.In this proposed project, we examine the financial performance implications of Chinesesupplier responses to the common hold-up problem faced when contracting with newbusiness to business customers (Schloetzer, 2012). We seek to understand the conditionsunder which suppliers will respond in a reactive (e.g. Schloetzer, 2012) or in a proactive(Radhakrishnan and Srinidhi, 2009) way when working with their largest customer. Wemodel these responses in the form of the supplier's choice to align their performancemeasurement system with their major customer at both the contracting stage and the postcontracting stage of the relationship. In 2010, we conducted 55 short interviews for thepurpose of checking and refining the interview instrument. During 2010 – 2012 we havealready conducted over 1000 face-to-face interviews with Chinese suppliers in theelectronics industry.The funding for this project will be used to purchase supplier financial data as well as forcollecting internet data and the analysis of 400 suppliers that have been matched using theChina Scope Financial database. The financial data will be used to test economicconsequences of the supplier’s response to customer and for identifying transactioncharacteristics such as the avoidance of hold-up costs or the gaining of resource deploymentbenefits.The impact from this study is enormous as it builds on the 1000 face-to-face interviewsalready conducted of Chinese suppliers. The pilot study of the project has drawn wideindustry attention which has resulted in invited presentations already given to both AmCham(in Nov 2012 and Aug 2013), and BritCham, HKGCC (in June 2013).