Conflict and Contract Use in Cross-Cultural Buyer-Supplier Relationships: The Role of Cultural Context

Conflict is common within global supply chains, especially where the buyer and supplier span different cultures. In such settings, formal contracts assume an important role in providing a common language that specifies each party's roles, responsibilities, and liabilities. However, the primacy, use, and interpretation of contracts is subject to the cultural norms of the two parties involved. We adopt a multi-method research design to understand how cultural context affects how suppliers interpret and respond to different contract functions (control vs. coordination) adopted by a buyer firm during conflict episodes. Study 1 involves multiple, in-depth case studies of conflict between three Indian suppliers and six of their international buyers from China, Germany, and the United States. Our findings highlight how the use of contractual control or coordination is interpreted differently depending on the supplier's cultural context. In particular, a mismatch in contract function use and the supplier's culturally derived expectations can lead to strong negative emotions and damage to the relationship. In Study 2, we propose and test a set of hypotheses via a scenario-based experiment of German and Chinese managers. We find support for our hypothesized conditional effects, showing that for suppliers from high-context cultures, the buyer's use of contractual control to address conflict has a significant negative, indirect effect on relationship commitment (via the emotion of anger). We conclude with a discussion of the implications of using contracts to manage conflict in cross-cultural supply chain relationships.