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The impact of supply chain integration on firm performance in the

pork processing industry in China

Article  in  Chinese Management Studies · June 2013

DOI: 10.1108/CMS-Jun-2011-0034

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CMS
7,2 The impact of supply chain
integration on firm performance
in the pork processing industry
230
in China
Jiqin Han
College of Economics and Management, Nanjing Agricultural University,
Nanjing, China
Hualiang Lu
School of Business Administration,
Nanjing University of Finance and Economics, Nanjing, China, and
Jacques H. Trienekens and S.W.F. (Onno) Omta
Management Studies Group, Wageningen University, Wageningen,
The Netherlands

Abstract
Purpose – Supply chain integration (SCI) is one of the most distinctive dimensions in achieving
long-term competitive advantage in the business world. Although considerable state-of-the-art studies
regarding the SCI concept and its dimensions have been conducted, empirical research by using the
data from agri-food firms in China to examine the relationship between SCI and firm performance
attract little attention. The purpose of this paper is to investigate the effects of SCI on firm performance
in pork supply chains in China.
Design/methodology/approach – The study follows a causal research approach and survey
methodology to collect data from 229 pork processors. The SCI-firm performance link is examined in
two relationships: the pork processors with their upstream pig (meat) suppliers and with their
downstream customers. Partial least squares method was used to test the causal relationships.
Findings – The results suggest that internal integration and buyer-supplier relationship coordination
are significantly related to firm performance in both relationships. Information technology integration is
not significantly related to both upstream and downstream relationships. Logistics integration
significantly contributes to pork processors’ performance in relationships with downstream customers.
Originality/value – The extension of the SCI construct contributes to supply chain management
theory in the context of China.
Keywords Supply chain integration, Firm performance, Pork processing firms, P.R. China, Buyers,
Suppliers, Channel relationships, Supply chain management
Paper type Research paper

Chinese Management Studies
Vol. 7 No. 2, 2013
pp. 230-252
q Emerald Group Publishing Limited
1750-614X
DOI 10.1108/CMS-Jun-2011-0034
Introduction
In an increasingly dynamic and competitive business world, proper management of the
supply chain is a key feature for promoting efficient management and developing
The authors would like to thank two anonymous reviewers for their valuable comments and
suggestions to improve the manuscripts. The authors also gratefully acknowledge the financial
support from the National Natural Science Foundation of China (71073081, 71173097).
important competitive advantages (Rao et al., 2006; Prajogo et al., 2012). Supply chain The impact
integration (SCI) is considered a strategic tool, which attempts to minimize operating of SCI on firm
costs and thereby enhances value for the stakeholders by linking all participating
players throughout the supply chain, from suppliers to customers (Kwon and Suh, performance
2005). Thus, this subject has attracted significant debate and discussion during the last
decade (Power, 2005). Spurred by food contamination scandals such as Sanlu milk
adulterated with melamine in 2008 and Shuanghui sausage involving Clenbuterol in 231
2011, policymakers and managers in China have realized that more attention needs to
be paid to the integration, coordination and supervision of supply chain partners
throughout supply chains.
Integration in a supply chain context is defined as a process of collaboration in which
companies in the chain work together in a cooperative manner to arrive at mutually
acceptable outcomes (Pagell, 2004). A growing body of literature has suggested a positive
relationship between the degree of integration across the supply chain and firm
performance (Stevens, 1989; Frohlich and Westbrook, 2001; Vickery et al., 2003).
Researchers have studied SCI using different dimensions, such as supplier and customer
integration (Homburg and Stock, 2004), and dyadic integration in the upstream
(Das et al., 2006) or the downstream supply chains (Gimenez and Ventura, 2005; Han and
Omta, 2007; Prajogo et al., 2012). A few examined information integration (Pedler, 1994)
and logistics integration (Chiu, 1995). Researchers also studied SCI as a single construct
(Rosenzweig et al., 2003; Han and Omta, 2007). Recently, Flynn et al. (2010) studied three
dimensions of SCI and their impact on operational and business performance
of manufacturing companies in China. Their findings indicated that internal integration
and customer integration were more strongly related to performance improvement than
supplier integration. Xiao et al. (2010) further examined the effects of trust and relationship
commitment on supply chain performance in 21 organizations of Zhejiang province, such
as household electrical appliances and textiles. They found that both trust and
relationship commitment played significant roles in improving cooperation performance.
However, most of the studies examine SCI from one model and they do not
distinguish the difference between upstream and downstream relationships.
Furthermore, while internal and external integration have been extensively examined
in SCI literature, certain aspects such as information integration, logistics integration,
and buyer-supplier relationship (BSR) coordination have largely been neglected
(Wang et al., 2006). Prajogo et al. (2012) studied logistics integration as a construct
embracing the integration of information and materials along the supply chain as a
supplier management practice. To our knowledge, there has also been a lack of
comprehensive empirical studies of SCI dimensions involving internal, upstream and
downstream domains of agri-food supply chains in China. Thus, the objective of this
article is to explore the impact of SCI dimensions (internal and external integration,
information technology integration, logistics integration, and BSR coordination) on firm
performance using the Chinese pork industry as an example.
The selection of Chinese pork industry is due to its prominence in worldwide pig
production and pork consumption. Total pork production in China reached 50.7 million
tons in 2010 (China Statistical Yearbook, 2011), accounting for half of the world’s
pork production. Since the 1980s, pork has been dominating the meat scene in China.
The share of pork in total meat production accounts for 64 per cent in 2010
(China Statistical Yearbook, 2011).
CMS The Chinese pork sector shows four notable features. First, pig production scale in
7,2 China is very small. The proportion of the pig supply from unspecialised households
(less than 500 pigs), the specialised producers (500-10,000 pigs) and the commercial
farms (more than 10,000 pigs) is 68, 26 and 6 per cent in 2009, respectively, (China
Statistical Yearbook of Animal Husbandry, 2011). Thus, pig production is still dominated
by small-scale producers with less than 500 pigs per year. Second, fragmentation and
232 integration coexist in pig slaughtering and processing sector. The small-scale
slaughterhouses and processors (annual sales less than e0.5 million) account for about
80 per cent of total production. Pigs slaughtered by the top three meat processors in
China only stands at 5 per cent of total production. The SCI and performance also
differed widely among large and small slaughterhouses. Third, the pork marketing
channels are diversified. The international markets for Chinese pork can almost be
ignored as it only accounts for less than 1 per cent of total pork production. The
wholesale market for pork product has been decreasing during the last decade.
The supermarkets are expanding rapidly in China, and have become a major force in
pork retailing since the late 1990s in urban China. Some foreign-invested hypermarkets
and famous domestic supermarkets, such as Carrefour, Wal-Mart, Makro, Metro,
Lianhua, Suguo, etc. select a limited number of commercial producers as their preferred
pork product suppliers in order to assure both product quality and consistency
(Fabiosa et al., 2005). Thus, the chain integration and firm performance across channels
show different pictures. Fourth, middlemen and agents are playing a significant role due
to small-scale pig production and diversified marketing channels. This happens mostly
in upstream of the supply chain. Slaughterhouses can lower transaction costs by
sourcing from middlemen and agents instead of directly from small-scale producers.
With increasing demands for food safety and quality, some leading pork processing
firms are building stronger brands by establishing closer coordination mechanisms with
their chain members and investing heavily in information technologies (IT) and cold chains.
However, the important question of whether a higher level of SCI leads to performance
improvements is still unanswered. There is also a lack of empirical investigations on
the SCI-performance link in the agri-food sector, in which small-scale suppliers and buyers
are dominant. The insights obtained in this study can provide practitioners in the pork
industry in developing countries with an instrument to integrate certain supply chain
practices to better manage their BSRs and improve firm performance.
The remainder of this article is structured as follows: the next section develops
the theoretical framework by reviewing available literature; the research design is then
described; thereafter, the empirical results are presented. This is followed by a
discussion of the results, conclusions and limitations. The paper concludes with an
assessment of the implications from a Chinese management perspective.

SCI and firm performance: literature review

With regard to the definition and classification of SCI practices, there has been much
debate in recent supply chain literature (Giunipero et al., 2008). Researchers have
studied SCI dimensions from different perspectives. Stank et al. (2001a) defined several
dimensions of SCI, among others, relationship integration, internal integration,
customer integration, supplier integration. Gimenez and Ventura (2005) classified SCI
into logistics-production integration, logistics-marketing integration and external
integration. Zhao et al. (2008) studied the impact of power and relationship
commitment on the integration between manufacturers and customers in a supply The impact
chain. Their findings indicated that normative relationship commitment had a greater of SCI on firm
impact on customer integration than instrumental relationship commitment. Due to the
importance of integrated information technology in supply chain management, we performance
consider IT as a separate dimension rather than as a dimension of internal or external
integration. Thun (2010) investigated the factors for customer-oriented IT integration
and supplier-oriented IT integration and the match of IT with SCI strategy in global 233
supply chains. Zailani and Rajagopal (2005) re-categorized and narrowed down SCI
variables to four major categories based on the classifications of Narasimhan and Kim
(2002): information sharing, internal integration, external integration with suppliers
and external integration with customers.
Paulraj and Chen (2007) tested the connection between strategic BSRs and logistics
integration with regard to performance. Furthermore, a recent study by Flynn et al.
(2010) emphasized the importance of relationship commitment as one of the interesting
areas for further research. Vickery et al. (2003) identified integrative IT and SCI as two
major dimensions of an integrative supply chain strategy. According to Das et al.
(2006), SCI includes customer/market integration, information integration, logistics and
distribution integration, supplier integration and purchasing integration.
According to our observation, studies on the impact of various SCI dimensions on firm
performance in emerging economies are limited, especially in agri-food sectors. Recent
studies are mainly related to electronic, automobile and equipment manufacturing firms in
coastal areas of China. For example, He and Lai (2012) examined the SCI and
service-oriented transformation in Chinese equipment manufactures. They classified SCI
into operational integration and strategic integration. Their research findings indicated
that both integrations have direct positive effect on product-based and customer-based
services. Furthermore, product-based and customer-based services are positively related
to firm performance. Song and Chatterjee (2010) studied the role of trust and learning in the
auto-component industry in China. The key findings of their research strengthen
the argument that the auto-component manufacturing sector has been moving from the
old “contract” and “catalogue” mindset to a mindset of “collaborative innovation”,
which contributes to the competitive advantage of the industry.
In this study, we define SCI dimensions as internal integration, external integration
(with suppliers and customers), BSR coordination, information technology integration
and logistics integration. We will then illustrate the relationships between these
dimensions and firm performance in more detail.

Internal integration, external integration and firm performance

Internal integration recognizes that different departments and functional areas within
a firm should operate as part of an integrated process. To fulfill customer orders,
all activities and functions have to work together rather than operate within functional
departmentalization and specialization. Thus, information sharing, joint planning,
cross-functional teams and working together are key elements of this process
(Flynn et al., 2010).
External integration, on the other hand, plays a different role in the context of SCI.
It recognizes the importance of establishing close, interactive relationships with suppliers
and customers. Due to the increasingly dynamic market environment that firms are
facing, they have to respond by developing, selecting, and implementing strategies to
CMS maintain fit, not only among internal structural characteristics, but also with their external
7,2 environment (Kotha and Nair, 1995). In an integrated supply chain, development of strong
strategic partnerships with suppliers and customers will facilitate understanding and the
anticipation of the manufacturer’s needs, in order to better meet its changing requirements
(Martinez, 1999). The mutual exchange of information about products, processes,
schedules and capabilities helps manufacturers develop their production plans, produce
234 goods on time, and improve delivery performance.
Supply chain theory has emphasized the need for integration of internal functions, as
well as integration with various other members of the supply chain (Watts et al., 1995).
Empirical evidence has shown that integrating specific internal supply chain functions
(e.g. manufacturing and purchasing) will lead to higher performance (Narasimhan and
Das, 2001). Frohlich and Westbrook (2001) also indicated that the most successful supply
chains are those which have integrated their internal processes with their suppliers and
buyers. We therefore propose a positive relationship between level of internal integration
and external integration with firm performance in the Chinese context.

BSR coordination and firm performance

In recent years, the nature of BSR coordination has undergone significant changes.
Supply chain researchers frequently describe these relationships as becoming closer,
while terms such as partnership and alliance are being used as opposed to the traditional
spot market exchange (Claro et al., 2006). Companies seeking to leverage the supply
chain as a means to improve performance have increased their focus on developing
closer relationships with suppliers, distributors and customers (Lu et al., 2008).
As a result there has been movement towards establishing longer-term trusted
partnerships. The establishment of an effective BSR has to be based on trust,
commitment, and cooperation among trade partners (Cambra and Polo, 2008).
The trusting relationships and interdependencies among members of the supply chain
will improve coordination and reduce transaction costs (Cadilhon et al., 2005).
The benefits of BSR coordination have been well documented. Buyers and suppliers
work together toward common goals to achieve more mutual benefits than can be
achieved by acting alone (Stank et al., 2001b). Cooperative relationships can help firms to
reduce transaction costs, access complementary resources and achieve a stronger
competitive position (Sheu et al., 2006). However, developing collaboration is a challenging
task for supply chain partners and several studies have pointed out the associated
difficulties. For example, considerable antagonism exists in BSR due to mutual distrust
and relationship difficulties before and during collaboration (Simatupang and Sridharan,
2002; Emiliani, 2003). These arguments have led to the investigation of the causal
relationship between BSR coordination and firm performance in this study.

Information technology integration, logistics integration and firm

performance
The literature suggests that there are two interrelated forms of integration that
manufacturers regularly employ. The first type of integration involves coordinating and
integrating the forward physical flow of deliveries between suppliers, manufacturers,
and customers (Saunders, 1997). The other prevalent type of integration involves
backward coordination of IT and the flow of data from customers to suppliers. IT
includes electronic data interchange (EDI) (Jayaram and Vickery, 1998), enterprise
resource planning (ERP) (Laframboise and Reyes, 2005), as well as sharing data from The impact
traditional planning and control systems (Bowersox and Daugherty, 1995). Firms invest of SCI on firm
in IT to create a seamless integration of entities in a supply chain, with the presumption
that these technologies will ultimately improve firm performance. A small number of performance
empirical studies have examined the relationship between IT integration and firm
performance. Among these, Ranganathan et al. (2004) found significant positive
associations between the benefits realized from web technologies and both internal 235
assimilation and external diffusion of such technologies to suppliers. Devaraj et al. (2007)
found increased exchanges of information such as sales forecasts, production schedules
and inventory levels with suppliers and customers result in better operational
performance. We thus expect a positive relationship between information technology
integration and firm performance.
As firms seek to improve their operational performance, it becomes necessary to
seek inter-organizational answers to logistics problems. Solutions with an external
focus appear, characterized by the sharing of resources, utilizing third-party logistics
and a deeper reliance on bought-in expertise (Smart, 2008). The essence of logistics
integration is well-coordinated flow of materials from suppliers, which allows firms to
have a smooth (seamless) production process (Frohlich and Westbrook, 2001). Best
logistics practices embrace the transaction trade-offs that allow simultaneous
improvement in economic performance and service quality (Stank et al., 2001b).
Previous study has suggested that logistics integration delivers operational benefits by
minimising total distribution costs and maintaining desired customer service levels
(Kenderdine and Larson, 1988; Van der Vaart and Van Donk, 2008). However, previous
literature revealed only a small handful of studies that touch on Chinese logistics issues
(Daly and Cui, 2003), especially in logistics integration with firms’ suppliers and
customers. Therefore, there is a necessity to further look at the causal relationship
between logistics integration and firm performance in the context of China.

Firm performance
In measuring firm performance, much attention has been devoted to three aspects:
financial, organizational, and strategic performance (Claro, 2004). Organizational theory
offers three approaches to measure organizational performance, namely the goal-based,
systems and multiple constituency approach. After comparing different measures of
performance, Murphy et al. (1996) suggest that multiple dimensions of performance
should be considered where possible, including both financial and non-financial
measures. Accounting-based indicators, efficiency, sales growth rate and profitability
(e.g. return on sales or investments) are commonly used financial indicators. In addition,
operational (non-financial) performance measures, such as product quality, customer
satisfaction and market share are also frequently examined (Claro, 2004; Soboh et al.,
2009). In this study, both financial (e.g. growth rate, market share, and profitability) and
non-financial (e.g. perceived customer satisfaction) indicators are used to measure the
performance of pork firms.

Control variable
Firm size is a contingency variable and may affect the resources and networking of a
firm (Scholten, 2006). It has been noted that larger firms have more resources than
smaller firms (Boyer et al., 1996). Limited resources and investments in IT, as well as
CMS system development software like ERP, are considered detriments to SCI in small and
7,2 medium-sized firms. Therefore, it is generally accepted that large firms may benefit
more from SCI because of their well-established organizational structure and ability to
invest in IT and system development (Thakkar et al., 2008). In this study, the size of the
pork processors was measured by number of employees. The respondents were
requested to report the number of employees in 2004.
236 The type of firm is another control variable in this study. There are three types of
firms in the pork processing sector of China: slaughterhouses, processing firms of ham,
sausages and other pork products and slaughtering-processing integrated firms. We
would like to see whether the degree of integration contributes differently to firm
performance in these three types of pork processing firms.

Research methodology
Samples and data collection
This study uses data from a survey in Jiangsu Province, Shandong Province and
Shanghai Municipality in eastern China, which is one of the most important hog
production and pork consumption regions in China.
During the pre-test, it proved difficult to get questionnaires back from the meat
processors by mail as they were not used to answering mailed questionnaires.
Therefore, the survey was carried out by undergraduate students from Nanjing
Agricultural University majoring in marketing, management and animal sciences,
during the winter and summer vacations of 2005. The students participated in a
well-designed training program before they conducted the survey.
Experts and professionals in the pre-test provided valuable information and
suggestions for data collection. A list of 3,430 focal firms (Shandong: 1,950; Jiangsu:
1,460; Shanghai: 20) was provided by the Designated Pork Slaughtering Administration
Office of the selected regions. The sample of the slaughterhouses was selected using a
systematic sampling technique. In order to minimize response bias, we targeted the top
and middle-level management team as the informants within each focal firm. Two
rounds of survey produced 258 questionnaires, from which 29 were discarded due to
incompleteness. Therefore, the sample base for the empirical research was 229 firms.
Mean comparisons of early respondents versus late ones yielded no significant
differences, indicating that non-response bias might be regarded as limited.

Measurement
Based on the literature review, we distinguished the following nine SCI variables for
this study: internal integration, external integration with firms’ most important
suppliers (MIS) and most important customers (MIC), BSR coordination with firms’
MIS and MIC, IT integration with firms’ MIS and MIC, logistics integration with firms’
MIS and MIC. All measures were operationalized on a seven-point Likert scale from 1
(“strongly disagree” or “totally untrue”) to 7 (“strongly agree” or “totally true”).
The detailed items used to measure each construct are listed in the Appendix.
Internal integration refers to horizontally aligning operations across processes
within the focal firms, e.g. integration of purchasing, production and distribution
activities. It was measured by three items: evaluating the extent of jointly deciding the
companies’ objectives, discussing and solving operational problems among different
functional departments, as well as the availability of information management systems
covering these departments. This instrument was developed based on the studies of The impact
Frohlich and Westbrook (2001) and Narasimhan and Kim (2002). of SCI on firm
External integration means linking external processes to suppliers and customers
by involving them in the development of strategic plans and production processes. performance
We used four items focusing on working together with suppliers and customers to
make production plans, sourcing decisions, sales forecast and share risks when
problems arise. They were based on the studies of Vickery et al. (2003), Frohlich and 237
Westbrook (2001) and Rosenzweig et al. (2003).
BRS coordination implies a mutual ongoing relationship between the focal firms
and their suppliers and customers that involves a high level of trust, commitment over
time, long-term cooperation, joint conflict resolution, and sharing of risks and rewards.
Four items were used to measure this construct. They were developed based on the
studies of Carr and Pearson (1999) and Claro (2004).
Information technology integration refers to integrating IT (such as computerized
production systems and EDI) to facilitate the collection of vital information concerning
key business processes and the sharing of such information with firms’ suppliers and
customers. During the pre-test, both experts and managers suggested that most of the
hog (fresh pork) suppliers did not utilize modern IT such as ERP and that internet and
fax were more common. However, customers like the big supermarket chains already
use modern IT in their business transactions. Therefore, one and three items were used
for the relationship between the focal firms and their upstream suppliers and
downstream customers, respectively. Items of IT integration were based on the studies
of Vickery et al. (2003) and Frohlich and Westbrook (2001).
Logistics integration means increased logistics-related communication and greater
coordination of the focal firms’ logistics activities with those of the firms’ suppliers and
customers (Stock et al., 2000). The three items were developed based on the studies of
Frohlich and Westbrook (2001).
Firm performance was measured using subjective items due to the difficulty of
obtaining economic data for financial indicators of sales growth and profitability as
well as the operating performance indicator of market share. The informants were
asked to compare their performance on these three indicators to their main competitors
in the past three years. The last performance measure used was customer satisfaction,
that was assessed by the degree to which the focal firm’s customers continuously
perceive that the focal firm’s quality needs are being met by its products and/or
services. The four items were mainly based on studies of Narasimhan and Kim (2002)
and Claro (2004).

Methods
The items of the measurements were subjected to a purification process by using SPSS
(Field, 2005) and partial least squares (PLS) (Wold, 1980). In the first step, exploratory
factor analysis with oblique rotation was conducted to select the most related items for
the five dimensions of the SCI construct. In the second step, factor loading, composite
reliability, average variance extracted (AVE), and item-to-total correlation were
obtained from the measurement and structural model to show the validity and
reliability of each construct.
Wold’s (1980) PLS method of estimating latent variables was employed in this
study. PLS is an alternative to ordinary least square regression, canonical correlation
CMS or structural equation modelling for analyzing dependent and independent variables.
7,2 PLS is often used for exploratory purposes. Although PLS estimation has some
shortcomings, such as the bias and inconsistency of loadings and inner structural
coefficients (Fornell and Cha, 1994), our decision was motivated by several
considerations. First, some theoretical problems such as inadmissible solutions
(i.e. negative error) and factor indeterminacy (i.e. nonconvergence) have been identified
238 with LISREL’s maximum likelihood estimation (Fornell and Bookstein, 1982). PLS,
however, avoids these two theoretical problems. Second, PLS estimation requires only
that the basic assumptions of least-squares estimation are satisfied. Third, PLS uses
jackknife or bootstrap in combination with the traditional measure of goodness-of-fit to
evaluate the model (Bagozzi, 1981). These advantages have encouraged the application
of PLS in an increasing number of fields. Following Chin (1998), bootstrapping with
500 resampling was used to show the precision of the PLS estimates.

Empirical results
The profile of the respondents and their company characteristics are displayed in
Table I. The results show that the respondents had a good knowledge of their
organizations. The top management team (general and deputy general managers), as
well as middle-level managers working in quality control and sales departments,
accounted for 41 per cent and 38 per cent of respondents, respectively. The remaining

Characteristics of the respondents No. of cases Percentage (%)

Job title
General or deputy general managers 93 40.6
Quality control managers 49 21.4
Sales managers 39 17.0
Head of the administrative office and others 48 21.0
Organizational status
State-owned 32 14.0
Collective 31 13.5
Private 70 30.6
Joint venture 16 7.0
Private and share holding 80 34.9
Main business (n ¼ 227)
Slaughterhouses 94 41.0
Further processing 60 26.4
Slaughtering/processing 73 32.2
Employees
Below 50 48 21.0
51-100 48 21.0
101-499 93 40.6
More than 500 40 17.4
Level of turnover (e1,000)
Below 500 47 20.5
501-3,000 82 35.8
3,001-30,000 82 35.8
Table I. Greater than 30,000 18 7.9
Profile of the respondent
companies Note: n ¼ 229
21 per cent were the heads of the administrative office and others. As for the status of the The impact
organizations, private industry is rapidly developing in China and our survey shows of SCI on firm
that 66 per cent of the firms are privately owned or private share-holding companies.
The survey on the business scope of the firms showed that 41 per cent of the firms were performance
slaughterhouses and 32 per cent were integrated slaughtering and processing
companies. Processors accounted for 26 per cent of the sample; 41 per cent of the
companies had more than 100 employees; 72 per cent of the companies had a turnover of 239
more than e500,000-e30 million, while only 8 per cent of the companies had an annual
turnover of more than e30 million.
We compared the difference of key variables among three types of firms. The results
show that internal integration is significantly different between the slaughterhouses
and processors and between the slaughterhouses and slaughtering-processing integrated
firms. Furthermore, internal integration, external integration both with upstream and
downstream partners, as well as logistics integration with downstream partners in the
slaughterhouses are significantly different from those in slaughtering-processing
integrated firms.

Result of construct reliability and validity

We examined the individual item reliability (factor loading), internal consistency
(composite reliability) and discriminant validity (AVE and inter-construct correlations)
for each construct by following the criteria for evaluating the validity and reliability of
constructs (Fornell and Lacker, 1981). The result of individual item reliability is listed
in the Appendix.
Items with factor loadings greater than 0.6 will be retained (Devaraj et al., 2007).
After deleting the items with low factor loadings (see items marked as “deleted” in the
Appendix), the remaining items’ factor loadings are $ 0.6, indicating a high degree of
item reliability.
The internal consistency is provided in Table II. Each scale was purified by
eliminating items if their corrected item-to-total correlation was less than 0.5 (Hair et al.,
1998). Internal consistency was assessed using composite reliability. The composite
reliability for all constructs of the current study exceeds 0.80 (Table I), indicating a
good internal consistency of the constructs.
EI refers external integration; BSR refers to buyer-supplier relationship; ITI refers to
information technology integration; LT refers to logistics integration; MIS refers to
most important suppliers; MIC refers to most important customers.
We assessed the discriminant validity in two ways. First, the square root of the AVE
should be greater than all construct correlations. Second, all items should load higher to
their associated construct than to the other constructs. Both conditions are satisfied in
this study, indicating that the constructs used in this study are more than adequate.

Results of structural model

The results of the structural model are shown in Figure 1. The average variance
explained (R 2) is 47.3 per cent, indicating robust explanatory power. Since PLS provides
standardised path coefficients, we can compare the direction and the magnitude of the
impacts based on path coefficients.
The results show that internal integration was significantly related to firm
performance (b ¼ 0.35, p , 0.01), implying that the higher the internal integration of the
 7,2

240
CMS

Table II.

constructs
(CR), AVE, and
inter-correlation of
Mean, standard deviation
(SD), composite reliability
Constructs Mean SD CR 1 2 3 4 5 6 7 8 9 10

1. Internal integration 4.34 1.32 0.88 0.83

2. EI with MIS 3.65 1.22 0.86 0.39 0.82
3. EI with MIC 4.55 0.99 0.86 0.60 20.31 0.81
4. BSR coordination with MIS 4.86 1.02 0.82 0.46 20.30 0.41 0.78
5. BSR coordination with MIC 5.03 1.04 0.81 0.41 20.27 0.42 0.50 0.77
6. ITI with MIS 3.31 1.13 1.00 0.37 20.27 0.27 0.26 0.25 1.00
7. ITI with MIC 3.01 1.40 0.88 0.70 20.36 0.52 0.42 0.33 0.41 0.84
8. LT with MIS 4.31 1.25 0.85 0.49 20.19 0.41 0.29 0.27 0.59 0.40 0.86
9. LT with MIC 4.45 1.22 0.86 0.51 20.26 0.47 0.32 0.26 0.52 0.46 2 0.67 0.87
10. Performance 4.23 1.34 0.85 0.61 20.27 0.46 0.47 0.46 0.30 0.49 2 0.38 20.48 0.77
Notes: n ¼ 229; the italic numbers on the diagonal are the square root of the variance shared between the constructs and their measures (square root of
average variance extracted, referred as AVE); off-diagonal are the correlations among the constructs
 The impact
Internal integration of SCI on firm
performance
External integration
External integration 0.35 with MIC
with MIS
0.02
241
–0.03

Firm 0.20 BSR coordination

BSR coordination 0.14 with MIC
with MIS performance

–0.03 0.03

IT Integration
IT Integration with MIC
with MIS –0.02 0.21

Logistics Logistics integration

integration with with MIC
MIS
Figure 1.
Path coefficients are significant at 5% level
Results of the
structural model
Path coefficients are not significant

pork processors, the higher their firm performance. This finding is consistent with
previous findings, such as those of Droge et al. (2004), Germain and Iyer (2006) and Flynn
et al. (2010), reconfirming the importance of cross-functional cooperation in firms in
creating strategies and objectives, sharing information and working together to solve
problems.
The result also reveals that BSR coordination contributed significantly to firm
performance in the relationships between the focal firms and their MIS (b ¼ 0.14,
p , 0.01) and their MIC (b ¼ 0.20, p , 0.01). A similar finding was found in the studies
of Claro et al. (2003). Their research revealed a significant impact of BSR characterized
by inter-organizational trust and joint problem solving on sales growth and perceived
customer satisfaction. This result further confirms that collaboration among partners is
crucial to achieve superior firm performance (Stank et al., 2001b; Sheu et al., 2006).
A significant effect of logistics integration on firm performance is confirmed in
relationships between the focal firms and their MIC (b ¼ 0.21, p , 0.05). However,
in relationships with upstream partners, the logistic integration-firm performance link
is not significant. The difference between the two relationships shows significant
managerial implications which will be further explored in the next section.
In order to gain a better understanding of the effect of various SCI dimensions on
different aspects of firm performance, we further analyzed the impact of SCI dimensions
on each variable of firm performance (sales growth, market share, profitability and
satisfaction, see Table III).
CMS
Path coefficient
7,2 Causal relationships With MIS With MIC

Internal integration ! Sales growth 0.335 (0.102)*

Market share 0.253(0.115)*
Profitability 0.303(0.092)*
242 Satisfaction 0.201(0.095)*
External integration ! Sales growth 2 0.047(0.044) 20.007(0.056)
Market share 2 0.016(0.043) 20.067(0.072)
Profitability 2 0.037(0.046) 20.002(0.050)
Satisfaction 0.019(0.040) 0.111(0.067)
Buyer-supplier relationship coordination ! Sales growth 0.075(0.062) 0.204(0.067)*
Market share 0.048(0.054) 0.260(0.074)*
Profitability 0.002(0.046) 0.124(0.071)
Satisfaction 0.251(0.065)* 0.056(0.049)
IT integration ! Sales growth 0.019(0.043) 0.016(0.055)
Market share 2 0.091(0.060) 20.136(0.086)
Profitability 2 0.046(0.048) 0.090(0.073)
Satisfaction 0.011(0.042) 0.084(0.070)
Logistics integration ! Sales growth 2 0.001(0.052) 0.155(0.080)
Market share 2 0.038(0.057) 0.239(0.086)*
Profitability 0.020(0.061) 0.136(0.083)
Table III. Satisfaction 2 0.058(0.060) 0.146(0.069)*
Path analysis results for
the upstream and Notes: The path coefficient is significant at: *1 per cent statistical level (two-tailed test); SE are in
downstream models parentheses

The results show that internal integration is significantly related to all four
performance indicators, indicating the importance of internal integration for firm
performance for pork processors in China.
BSR coordination contributes significantly to perceived satisfaction in the
relationship between the focal firms and their MIS. Furthermore, it is significantly
related to sales growth and market share in relationship with the firms’ MIC. This
might be explained by the greater effort of the pork processing firms to work with their
downstream customers in generating sales growth and enlarging market share.
Logistics integration has insignificant effects on performance indicators in the
relationships between the focal firms and their MIS. However, it increases market share
and perceived satisfaction in the relationships between the focal firms and their MIC.
This indicates that the firms put more effort in logistics integration in their
downstream supply chain management, which may eventually improve their firm
performance in terms of market share and perceived satisfaction.
We also did a post hoc analysis to check whether SCI in the firms of different size
will influence the degree of firm performance. The mean comparison based on firm size
showed the homogeneity of variance has been assumed in this study. Firm size does
not significantly differentiate the degree of SCI on firm performance. This finding is
consistent with that of Claro et al. (2006).

Conclusions, discussions and limitations

This study investigates the impact of SCI on firm performance for pork processors in
China. We focus on five dimensions of SCI: internal integration, external integration,
BSR coordination, IT integration and logistics integration. In addition to internal The impact
integration, the other dimensions have been studied in terms of two relationships of SCI on firm
between the pork processors and their most important hog (pork) suppliers and
between the pork processors and their most important buyers. performance
Internal integration was positively and significantly associated with firm
performance. This finding shows the importance of cross-functional cooperation in
making joint strategies and setting joint objectives, sharing information and working 243
together to solve problems.
External integration showed insignificant impact on firm performance for both
relationships. There was a rather limited extent of sharing production plans, sourcing
decisions and hog inventories between the pork processors and their MIS. Nor did the
pork processing firms work together with their MIC to share sales forecast and risks
and promote products. There was a clear boundary division between the firms and
their suppliers and customers in these operational decisions.
BSR coordination had significant positive relationships with firm performance for
both relationships. Long-term BSR increase mutual understanding and expectations of
future business transactions, which in turn, facilitate cooperation, joint problem solving
and trusted relationship building. These are the indicators of a successful partnership.
IT integration was not significant in its contribution to firm performance in the pork
processing industry. In an uncertain market, responsive technologies can help firms to
secure raw materials and supply customers in due time. Nevertheless, the direct link
between IT integration and firm financial performance is not yet clear due to the
complexity of actual implementation. Han et al. (2009) found that firms that had
implemented integrated IT systems indicated more success in improving customer
service and profitability than non-integrated firms, but only through quality
management. Therefore, quality management can be regarded as playing an important
mediating role in the IT integration-performance link. Indeed, quality is becoming
extremely important for increasingly demanding customers in China. The recent
Shuanghui Clenbuterol crisis is a good example. The largest meat processor in China
was hit by an illegal additive, Clenbuterol, in 2011 and its sales and reputation have
suffered from severe sales decrease.
Logistics integration had a different impact on the two relationships. While logistics
integration with downstream customers contributed significantly positive to market
share and perceived satisfaction with the focal firms, integration with upstream
suppliers did not have a significant impact. The limited extent of logistics integration in
the upstream supply chain might be explained by the fragmented hog supply chain in
China. During 2005-2007, around 70 per cent of pigs were supplied by small-scale
producers of fewer than 100 hogs per year (China Statistical Yearbook, 2008).
The processors mainly depended on external agents who collected hogs from the
small-scale producers and sent them to the processors, thereby making it rather
difficult to achieve logistics integration. However, on the downstream side, the pork
processors worked closely together with their large customers such as supermarket
chains to reduce transportation, inventory management and distribution network
management costs.
The reader should be aware of the following limitations of this study: first, although
our approach to getting data from the most knowledgeable informant is consistent
with prior research on vertical relationships (Heide and John, 1990), the dependence on
CMS a single respondent for data on buyer-seller relationships suggests the possibility of
7,2 common method bias. Further studies could use multiple data sources of BSRs to
improve the reliability of the measures and increase confidence in the results.
Second, the generalisability of our results must be carefully considered. The sample
of China’s pork processors may reflect some unique characteristics. It is imperative to
replicate the present study in other research settings to see whether the findings are
244 robust. Furthermore, the analysis is cross-sectional in nature and provides only static
snapshots of SCI dimensions and their impact on firm performance. Research needs to
extend from this static analysis of SCI towards a more dynamic analysis by taking into
account firms’ involvement in SCI in different periods of time. This will provide a
worthwhile undertaking for further study.
Third, the role of firm strategy should also be considered in the relationship
between SCI and firm performance. Stonebraker and Afifi (2004) suggest that
different types and amounts of supply chain integrative efforts are appropriate
in different situations. Therefore, future research may explore the moderating role of
a firm’s competitive strategy on the effect of various dimensions of SCI on firm
performance.

Managerial implications
Though robust investigations can be found on the impact of SCI on firm performance,
we found there is a lack of in-depth research on the contributions of SCI dimensions on
various performance indicators of the food industry in developing countries with a
prevalence of small-scale suppliers and a low concentration of processing firms.
Especially we are facing stringent challenges of food quality and safety issues, such as
the clenbuterol crisis. It is critical for managers and policy makers to focus on the SCI
and BSR coordination in order to improve food quality and safety, so that they can
increase consumers’ confidence and rebuild the pork industry’s reputation. The present
study not only provides several important implications for managers of domestic pork
processing industry and policy makers to exploit the benefits of SCI to firm
performance in transitional economies, but also provide practical guidance for
multinational meat processors who are interested in the Chinese market.
First, it is important for firms to achieve integration across internal supply chain
functions. There is a general consensus in academia and business on the necessity of
internal integration. The implementation of internal integration practices requires
changes not only in a firm’s organizational structure, but also in their incentive systems,
directed to create teamwork to fulfil market demands. Managers of different
departments should work together on sharing information, establishing ways of
reducing costs and improving firm performance.
Second, BSR coordination is critical for achieving higher firm performance, especially
in uncertain market conditions. Long-term orientation, commitment and trust are the
social aspects of the BSRs. As companies operate in a business network, they need to
understand that they are dealing with partners with different business relationships and
supply chain architectures. Without interdependence, commitment and trust,
developing supply chain architecture is difficult and challenging, if not impossible
(Sheu et al., 2006). Good BSR coordination is particularly vital for companies to secure
supplies and generate more sales and larger market share in uncertain market
conditions. For example, the trusted relationship between the pork processors and their
suppliers will reduce opportunistic behaviour among the large number of small-scale The impact
suppliers in China, thus lowering transaction costs. of SCI on firm
Last but not least, logistics with customers will generate more sales, enlarge market
share and improve perceived customer satisfaction. To better meet customers’ changing performance
requirements in dynamic markets, firms should not only focus on streamlining logistics
activities among departments within the firms, but also on coordinating the flow of
materials from the firms to their customers throughout the value chain. This requires a 245
change of mindset from the traditional focus on dividing logistics activities only along
functional boundaries to working together with downstream customers in order to
exploit the benefit of logistics integration and improve the competitiveness of the firms.

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7,2
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Hawaii, January 6-9.

Appendix. Measurement and factor loadings for each construct (n 5 229)

Please indicate the number that best reflects your judgment with regard to your company.
On the Likert scale, “1” – not true at all or totally disagree; “4” – neutral and “7” – totally true or
totally agree.

“Supply chain integration with most “Supply chain integration with most important
important suppliers” customers”

External integration (a ¼ 0.77) External integration (a ¼ 0.76)

Work with our most important suppliers to
make production plans
Participates in the sourcing decisions of our
most important suppliers
Our most important suppliers provide us with
the inventory data of hogs (meat) they have
Share risks with our most important suppliers
(deleted)
Supplier-buyer relationship coordination
(a ¼ 0.66)
Our most important suppliers are trustworthy
Our most important suppliers and our
company effectively deal with problems that
arise in the course of cooperation
Have cooperated with our most important
suppliers for a long time
Frequently measure the performance of our
most important suppliers (deleted)
Information technology integration (single
item)
For most of the times, we share information
with our most important suppliers by using e-
mail/fax
Logistics integration (a ¼ 0.70)
Our logistics activities are well integrated
with those of our most important suppliers
Table AI.
Work with our most important customers to make
production plans (deleted)
Our most important customers provide us with sales
forecast for products our company sells to them
Our company works together with our most
important customers to promote our products
Share risks with our most important customers
Supplier-buyer relationship coordination (a ¼ 0.72)
Our most important customers are trustworthy
Our most important customers and our company
deal with problems that arise in the course of
cooperation
Have cooperated with our most important customers
for a long time
Frequently measure the performance of our most
important customers (deleted)
Information technology integration (a ¼ 0.82)
Our most important customers share sales
information with us through information
management systems
Most of the time, we share information with our most
important customers by e-mail
Communication with our most important customers
through ERP system
Logistics integration (a ¼ 0.71)
Our logistics activities are well integrated with those
of our most important customers
(continued)
 The impact
“Supply chain integration with most “Supply chain integration with most important
important suppliers” customers” of SCI on firm
Work together with our most important Work together with our most important customers to
performance
suppliers to reduce logistics costs instead of reduce logistics costs instead of the internal cost of
the internal cost of the company the company
Internal integration (a ¼ 0.79) 251
Different departments to decide jointly about
company objectives
Jointly discussion and operational problems
solving by a team
Well-functioning info management system
covering different departments
Dependent variable “firm performance”
(a ¼ 0.88)
Sales growth
Total volume of our company has grown
faster than that of our main competitors in the
last three years
Market share
Market share of our company has increased
faster than that of our main competitors in the
last three years
Profitability
We achieved better profitability than our
main competitors in the last three years
Customer satisfaction
We achieved better customer satisfaction on
product quality than our most important
competitors in the last three years Table AI.

About the authors

Jiqin Han (PhD, Wageningen University) is a Professor at Nanjing Agricultural University of
China. Her research interests concern agrifood supply chain management and quality
management. She has published in peer reviewed international and domestic journals such as
International Journal for Production Economics, Food and Agribusiness Management Review
and China Rural Economy. Jiqin Han is the corresponding author and can be contacted at:
jhan@njau.edu.cn
Hualiang Lu (PhD, Wageningen University) is a Professor at Nanjing University of
Finance & Economics. He received his PhD from Wageningen University in the field of
Management Studies. His research interests encompass supply chain management, corporate
social responsibility and sustainable development. He has published in Supply Chain
Management: An International Journal, British Food Journal, Agribusiness: An International
Journal, China Agricultural Economics Review, Journal on Chain and Network Science, Journal of
International Food & Agribusiness Marketing, and in a variety of book chapters and national
journals.
Jacques H. Trienekens (PhD, Wageningen University) is an Associate Professor at the
Management Studies Group, Wageningen University. His research is in the field of supply chain
and network management. He is editor and associate editor of Journal on Chain and Network
Science and International Food and Agribusiness Management Review, respectively, and has
published in a variety of peer reviewed international journals such as International Journal for
CMS Production Economics, Production Planning and Control, Computers in Industry, Food and
Agribusiness Management Review and Journal on Chain and Network Science. He is a Fellow of
7,2 the International Food and Agribusiness Management Association.
S.W.F. (Onno) Omta (PhD, Groningen University) is Chaired Professor in Business
Administration at Wageningen University, and the Editor-in-Chief of the Journal on Chain and
Network Science. He graduated in Biochemistry and defended his PhD thesis on the Management
of Biomedical Research and Pharmaceutical Innovation at the University of Groningen. He is
252 author of many articles on innovation management and the author of different books in this area.
He has been active as a management consultant for a large variety of (multinational) companies
in the area of innovation management. His current research interest encompasses innovation in
chains and networks in the agrifood industry.

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