Opportunistic behaviour

The past development of the organic food industry has allowed a mechanism of self eontrol or peer control to operate, but some researchers points out that this system may not be sufficient anymore to assure both the operators and the consumers against the risk of malpractices, hidden opportunistic behaviour and eonsumers trust betrayal (Jahn ei al, 2004). 

On the other hand, the risk inherent in the flow of money pertains chiefly to untimely payment, hedging or letters of credit. ICT systems are exposed to cyber attacks, weak firewalls, failures and equipment theft. Opportunistic behaviours and transaction costs pertain to risk in relationships with suppliers. The GSR area is associated mainly with threats to the reputation of the enterprise related to unacceptable practices (e.g. child labour) that the company or its business partners may have adopted. 

In their opinion, excessive pressure on guarantees preventing opportunistic behaviours is not conducive to the employees initiative, their willingness to cooperate and to get involved. ... 

The Dutch Council for Public Administration can play a role in this. The Council already focused on the politics of incidents in an earlier report (VeiligheidenVertrouwen) on security, where it stated that the incident management requites calmness of politicians (who should refrain from opportunistic behaviour), of the media (which should avoid dramatising events) and of citizens (who should reserve judgement and not be overwhelmed by the media assault). 

Transaction specific investments made by sellers stimulate cement long-term relationships with buyers. Such investments promote relational exchanges and increase the commitment between partners (Blau, 1964 Cook and Emerson, 1978). Guanxi network thus safeguard transactions by reduce the opportunistic behaviour (Standifird and Marshall, 2000). We then expect that the guanxi network has a positive impact on the wiUingness to invest in transaction specific investments. 

In a well developed guanxi network, the transaction costs associated with opportunistic behaviour are low, so the information and negotiation costs are also low for the trusted counterparts. Thus we expected that the chain participants can achieve effective business relationships with well developed guanxi network. 

Good reputation increases trust. The companies are wilhng to keep their reputation to each customer b ecause of the transferability and transparency of the guanxi network. Any opportunistic behaviour to any customer may lead to the reputation damage within the whole guanxi network. So people like to trust those who with good reputations. 

The key variables in TCE are asset specificity and the amount of uncertainty in a market (Klein et al, 1978 Williamson, 1985). Asset specificity represents the degree to which an investment is specialized to a particular supplier or buyer, provoking switching costs. Sunk costs enforce opportunistic behaviour and create hold-up problems. Uncertainty contains the degree of unanticipated environmental changes or behavioural responses by the business partner. Besides prices, quality uncertainty is a major concern in agribusiness due to the different food crises especially in the meat industry (Hobbs et al, 2002). 

Transaction cost theory is based on three behavioural assumptions bounded rationality, opportunism, and risk neutrality. According to Williamson (1985) three contractual features influence the level of the costs accompanying transactions (1) transaction-specific investments, (2) uncertainty accompanying the transaction, and (3) frequency of transactions. In the case of agricultural products/produce (like milk) the most distinctive product feature is perishability. This implies several contractual risks, for example the opportunistic behaviour of the contracting parties, or the so-called hold-up problem that comes up if one contracting party tries to exploit the other party s vulnerability connected to his asset specific investments (Royer, 1999 49). 

Second, cooperative concepts like ECR are often threatened by conflicts and opportunistic behaviour of the involved partners. In contrast to that, an intensive and faithful relationship is necessary to stabilise the cooperation (Gerlach et al., 2004). Nevertheless, the current relationship between manufacturers and retailers is characterised by extreme competition. This must be replaced by a cooperative spirit of mutual interest (Gruen and Shah, 2000). Long-term considerations foster fair behaviour in questions of joint aims, allocation of returns and claims to leadership. Private contacts often help to socialise and stabilise business affairs (Borchert, 2002 Belz, 1998). A good relationship is finally characterised by mutual trust, which helps to find ways to solve power games and conflicts (Mentzer et al, 2000). Trust is of great importance as a constitutional success factor of cooperation (Corsten and Gossinger, 2004). 

The differences in the interest of SC members due to local perspectives and opportunistic behaviour... 

A key issue that prevents partnerships from enduring appears to be the gap between the strategic requirements of long-term partnerships and tactical-level manoeuvring - in particular, opportunism. It is a problem to resolve this, given that the dimensions that characterise close working relationships also provide both opportunity and increased incentive for opportunistic behaviour. This is caused when partners cannot easily obtain similar benefits outside the relationship and when specialised investments have been made. Buyers often assume that suppliers will take advantage if they become too important, and therefore act to prevent this. The consequences for the partnership relationship come second in their considerations. 

The literature review shows a gap in empirical evidence about the effects of instmments which are designed to prevent opportunistic behaviour in supply networks. This chapter contributes to addressing this gap in two ways. Firstly, the instruments which are used most frequently in practice to avoid opportunistic behaviour will be identified from the empirical study. This empirical approach is necessary at this stage as it is not yet clear whether the proposed instruments are really in use in practice. Subsequent to this first objective, the second objective is to test the effect of identified instruments on the prevention and management of opporturustic behaviour. 

A model is developed initially based on the Principal-Agent Theory. The results of the empirical study are incorporated in the development of this model. The model is then employed to evaluate the effects of the instruments on opportunistic behaviour, both the direct and the indirect effects. The indirect effects are evaluated by introducing the construct asyrmnetric information as a mediating variable. The model is then tested against data from a questionnaire-based study. A structural equation modelling approach is employed as this is considered to be especially suited for this purpose. 

The Principal-Agent Theory serves as the theoretical basis for the model (Eisenhardt 1989). This theory helps to explain the occurrence of opportunistic behaviour between a principal and an agent as a resrrlt of asynrmetric infomration between partners within the supply network. Actiorts to reduce asymmetric information within supply networks are proposed as an approach to coping with or managing the risks of opporttmistic behaviottr. 

Since the Principal-Agent Theory explains the functional and dysfunctional behaviour of partners in Principal-Agent-Relationships, it is able to explain the opportunistic behaviour of partners (Jensen and Meckling 1976). Therefore, it provides a valuable theoretical basis for the model of this chapter. Regarding the second objective of this chapter the Principal-Agent Theory contributes to determining the central hypotheses. 

Sanctions Sanctions, in the event of the occurrence of opportunistic behaviour, are one of the first instruments mentioned by each interviewee. 

These five instruments serve as independent variables in the model developed for this study. Being the main enabler for opportunistic behaviour, asymmetric information is used as a mediating factor. In this way it can be tested whether or not these instruments only have a direct effect on opportunistic behaviour or whether they may also have an indirect effect by influencing the level of asymmetric information. The result is a three-stage model which represents a more complete approach than a more simplified two-stage model without the mediating factor (see Fig. 15.2). 

The first stage of this model is represented by our central hypotheses (HI). The structure and substance of hypotheses H2-H6 is basically the same only changing the independent variable. Direct and indirect effects are differentiated by introducing the letters a and b , with a marking the indirect effect and b the direct effect of the examined instruments. To determine the direction of the predicted effects + and are introduced. Hence, H2b (-) represents the hypotheses the higher the quality of communication the lower the level of opportunistic behaviour within the supply chain. 

The results of the statistical test are presented in Fig. 15.3. Generally, the hypotheses are supported. First of all, empirical evidence provided support for the central hypothesis of this study (HI). The level of asymmetric information has a positive effect ( = 0.24, / <0.05) on opportunistic behaviour. Therefore, asymmetric information could serve as a mediating variable for indirect effects of the independent variables. 

The model explains 57% of the variance of opportunistic behaviour thus showing the exceptionally good quality of the model. 

Another explanation is the existence of a non-observed factor which influences the partner selection effort and the level of opportunistic behaviour both in the same way. The discussion in the focus team led to several possible factors, e.g., the length of time the partners know each other. This non-observed variable may have a negative effect on partner selection effort and on opportunistic behaviour, thus resulting in a positive correlation of those two constiucts. The discussants agreed that the longer they know a partner, (e.g., from previous partnerships), the lower is the partner selection effort Combined with the fact that the longer they know a partner the less likely is the occurrence of opportunistic behaviour. This may cause the occurrence of quasi-correlatioa... 

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