Journal of Indian Business Research

Effect of relationship building and constraint-based factors on business buyers'

relationship continuity intention: A study on the Indian steel industry
Satyajit Jena K.K. Guin S.B. Dash
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Satyajit Jena K.K. Guin S.B. Dash, (2011),"Effect of relationship building and constraint-based factors on
business buyers' relationship continuity intention", Journal of Indian Business Research, Vol. 3 Iss 1 pp. 22
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JIBR
3,1 Effect of relationship building
and constraint-based factors
on business buyers’ relationship
22
continuity intention
A study on the Indian steel industry
Satyajit Jena
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Management Training Institute, Steel Authority of India Ltd, Ranchi, India

Journal of Indian Business Research
Vol. 3 No. 1, 2011
pp. 22-42
q Emerald Group Publishing Limited
1755-4195
DOI 10.1108/17554191111112451
K.K. Guin
Vinod Gupta School of Management,
Indian Institute of Technology, Kharagpur, India, and
S.B. Dash
Indian Institute of Management, Lucknow, India
Abstract
Purpose – The purpose of the study is to examine key antecedent variables that affect buyers’
relationship continuity intention and measure the relative importance of these key antecedent variables.
It also aims to examine the mediating roles of an inter-organizational trust (trust in supplier organization)
and buyers’ dependence in determining buyers’ relationship continuity intention. To this effect, the paper
groups the predictor variables of relationship continuity under two broad categories of factors,
i.e. constraint-based factors; and relationship building factors.
Design/methodology/approach – Data were collected from 137 steel buyers. Exploratory and
confirmatory factor analysis was used to test the validity of the measures. The hypotheses were tested
using structural equation modelling. The empirical tests included direct effect and mediating effects testing.
Findings – Trust in supplier was found to mediate the positive effects of communication and offer
quality on buyers’ relationship continuity intention. Trust in supplier was also found to mediate the
negative effects of opportunistic behavior on buyers’ relationship continuity intention. However,
dependence on supplier does not predict buyers’ relationship continuity intention.
Research limitations/implications – The study indicates that it is the relationship building factors
and not dependence-based factors that predict relationship continuity intention of buyers in BtoB
relationships. Offer quality aspect has the highest effect on trust in the supplier, pointing to fact that
buyers also need tangible evidence to develop trust in the relationship. The study has covered the
perception of buyers only and therefore the views can be one sided. Further, there might have been a
tendency for the respondents to select a particular supplier with whom they have a good relationship.
Practical implications – Marketing managers of suppliers should try to develop trust-based
relationships rather than dependence-based relationship with their buyers. In order to build trust in the
BtoB relationship, the study suggests that steel suppliers should invest in both economic and
behavioral aspect of transaction. Further, suppliers should put performance management systems in
place in their organizations that do not encourage opportunistic behavior in their salespersons.
Originality/value – The study relates to inclusion of both behavioral and economic antecedents of
trust. Most of the prior studies in BtoB buyer-seller relationships have focused on behavioral or
economic antecedents of trust, but rarely have both aspects been studied together. This study gives an
empirical basis on which steel companies can base their BtoB marketing strategy.
Keywords Buyers, Buyer-seller relationships, Trust, Marketing strategy, Steel, India
Paper type Research paper
 1. Introduction Relationship
Recently, the relationship between buyer and seller has become “strategic” and the building and
process of relationship development is accelerated as firms strive to create relationships
to achieve their goals (Wilson, 1995). Several studies are beginning to indicate that to constraint
retain customers is a less expensive and perhaps more sustainable competitive
advantage than acquiring new ones. Kotler (1998) has argued that organizations would
be able to lower transaction costs as they built trust and develop interest in cooperating 23
with one-another. Over the past two decades, marketers have shifted their thinking about
transactions and relationships and research has indicated a shift from a transaction to a
relationship viewpoint (Dash et al., 2009). Retaining buyers or buyers’ relationship
continuity has emerged as one of the most important outcomes of business to business
(BtoB) marketing efforts. Buyers’ relationship continuity intention is a reflection of
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their long-term orientation. Buyers with short-term orientation are concerned with the
options and outcomes of the current period, whereas customers with a long-term
orientation focus on achieving future goals and are concerned with both current and
future outcomes.
Anderson and Weitz (1989) focused on factors such as trust between the parties,
imbalance of power, communication between parties, stakes in the relationship,
manufacturer’s reputation, and age of the dyad that determines buyers’ intention of
relation continuity. Though Anderson and Weitz have considered all the variables at the
same level, later work by Morgan and Hunt (1994) has shown that trust between the
parties act as the mediating mechanism between antecedent and outcome variables.
Ganesan’s (1994) study of long-term orientation in a retail environment, focused on trust
and dependence as the key variables that affect long-term orientation. Though Ganesan
has treated trust and dependence as mediating mechanisms through which the
antecedent variables affect retailers’ long-term orientation, he has not done the mediating
test for the variables. Morgan and Hunt (1994) established trust and commitment as the
key mediating variables (KMV) that act as the operating mechanism between antecedent
and consequence variables. This theory came to be known as the KMV theory. This
theory was proposed based on a single industry (tire industry) study; further replication
by Friman et al. (2002) confirmed the validity of the theory. While Morgan and
Hunt (1994) treat commitment and trust at the same level, other studies have treated
commitment as an outcome variable (Gundlach et al., 1995; Geyskens et al., 1996;
Tellefsen, 2002; Doney et al., 2007). Gundlach et al. (1995) find that commitment
development is mediated by social norms and opportunism. A study by Geyskens et al.
(1996) differentiated commitment as calculative and affective and concluded that
calculative commitment is predicted by dependence, whereas affective commitment is
predicted by trust. Doney and Cannon (1997) find that though the current supplier choice
is influenced only by delivery performance and relative price/cost, future interaction is
predicted by trust of supplier firm and trust in salesperson. As per Nielson (1998),
closeness in a buyer-seller relationship is predicted by trust, relation-specific investment,
and commitment. In a study in business to consumer (BtoC) context, Garbarino and
Johnson (1999) report that trust and commitment are the KMVs for predicting future
intention in the case of relational customers while, satisfaction is the KMV in the case of
transactional customers.
A study by Bonner and Calantone (2005) in BtoB context finds that favorable buyer
purchase behavior is driven more by buyer attentiveness than either by the degree
 JIBR of dependence the buyer has on the manufacturer or the length of the relationship.
3,1 Powers and Reagan (2007) studied the differing roles of relationship atmosphere
factors across relationship stages. Performance satisfaction was found to be greatest in
the last two stages of buyer-seller relationships and lowest in the defining stage. Trust
was found to be most important in the later stages of buyer-seller relationships. Sezen
and Yilmaz (2007) find that channel members’ solidarity towards partners is affected
24 both by dependence and trust.
Most of the research works in the long-term buyer-seller relationship area focus on a
specific aspect or theory. Heide and Miner (1992) have proposed to make the BtoB
relationship frameworks more broad based. Past studies have focused on economic
(offer related) or social antecedents of trust, but rarely on both. Further to this, the
majority of the studies reviewed in the area of buyer-seller relationships have been
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conducted in the distribution channel and BtoC context. There are relatively fewer
studies which have been conducted in the BtoB environment, which is our context for
research. Further, much of the research work in this area has been in USA, and to some
extent European, markets. In this context, Geyskens et al. (1996) and Cunningham and
Green (1984) have raised concerns regarding the external validity of the theories and
have suggested further studies in other countries.
Our paper will address the above gaps and contribute towards establishing external
validity of the BtoB relationship research.

2. Relevance for Indian steel industry

Indian steel industry, like the global steel industry, is cyclical in nature, having
characteristics of a matured commodity (Sinha and Jena, 2002). The industry has gone
through periodic bad phases, thereby making it a low profit potential industry
(Ahlberg et al., 1999) in the long-run. Traditionally, steel manufacturers have attempted
to increase their market share by achieving and exploiting a sustainable product cost
advantage rather than by trying to differentiate their product offerings. Steel customers,
in turn, have embraced the adversarial model of buyer-seller relationships, emphasizing
intense price bargaining (McQuiston, 2004) to achieve the lowest possible invoice costs.
Alajoutsijarvi et al. (2001) conclude that one of the important factors contributing to
cyclicality in commodity industries like steel, fine paper, and copper is due to short-time
perspective regarding prices and volumes within the buyer-seller relationship; therefore,
forging long-term relationships between buyers and sellers is very important. Typically,
the nature of buyer-seller relationships changes from extreme customer dominance
during a bust period to extreme supplier dominance during boom period. Thus,
long-term relationship between buyers and sellers is of paramount importance. For
India, as a growing economy, steel is one of the key infrastructure industries. The
National Steel Policy (2005) document says that India’s indigenous production is
expected to be over 100 million tonnes (mT) per annum by 2019-2020 from the 2004-2005
level of 38 mT. On a ball park estimate, this will involve Rs 300,000 Cr (at an estimated
cost of Rs 5,000 Cr per mT). Without long-term buyer-supplier relationships this
investment will not yield adequate financial returns on a consistent basis.
Though buyer-seller relationships have generated a lot of interest and have been the
central focus in relationship marketing research, there is no empirical research of note,
which has investigated the antecedent factors affecting the relationship continuity
intention of buyers in a major industry like that of the Indian steel industry.
 3. Theoretical background and hypotheses Relationship
3.1 Inter-organizational trust and relationship continuity building and
Trust has been defined as:
constraint
[. . .] [t]he firm’s belief that another company will perform actions that will result in positive
actions for the firms, as well as not take unexpected actions that would result in negative
outcomes for the firm (Anderson and Narus, 1990).
25
This is because the presence of trust can reduce the specification and monitoring of
contracts, provide material incentives for co-operation, and reduce uncertainty (Hill, 1990).
Trust established between firms, and between firms and consumers, is one of the
fundamental resources that firms can make use of in order to control complexity. Trust is
also the willingness to rely on an exchange partner in whom one has confidence
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(Moorman et al., 1992). Trust has a notion of belief, a sentiment or an expectation about an
exchange partner that results from a partner’s expertise, reliability, and intentionality.
Morgan and Hunt (1994) find that trust is central to strengthening relationship with
customers. Wolff (1994) provides a prescriptive framework from a practicing manager’s
perspective for creating trust in the alliance between two firms. Doney and Cannon (1997)
presented a framework listing the antecedents and consequence of trust in the relationship
between firms in business markets where trust in the supplier organization and trust in
the salesperson are both key variables influencing the buyers’ future intention. Rackham
and de Vincentis (1999) have reported in their research that the meaning and role of trust
changes from trusting the product/service in transactional selling to trusting the sales
person in consultative selling and trusting supplier firm in strategic selling.
Based on the above argument, we posit that:
H1. Trust in supplier has positive effect on relationship continuity intention of
buyers.

3.2 Effect of communication

Communication would broadly mean formal as well as informal sharing of meaningful
and timely information between firms (Anderson and Narus, 1990). Communication,
especially timely communication by the supplier firm, fosters trust by assisting in
resolving disputes and aligning perceptions and expectations (Moorman et al., 1992).
Anderson and Narus (1990) have noted that past communication is an antecedent of
trust, but in subsequent periods this accumulation of trust leads to better communication.
Mohr and Nevin (1990) find that, in channel relationships, collaborative communication
positively affects the channel outcomes particularly commitment, satisfaction, and
coordination of channel members. Communication is collaborative when it has elements
of frequency, feedback, formality, and non-coerciveness. With the advent of modern
computer and communication technologies, multiple channels of communication have
emerged that have the potential to strengthen the formal communication system between
buyer and supplier organization. This, better communication by the supplier
organization, can lead to greater trust between exchange partners. Communication in
BtoB relationships can also be enhanced through informal means like a visit of the
salesperson to the supplier firm (Doney and Cannon, 1997). The more visits the
salesperson makes, the better the communication at the interpersonal level would be.
Communication, in terms of frequency and quality (i.e. relevant, timely, and reliable) of
information exchange, is a significant factor in developing trust in the buyer-seller dyad.
 JIBR However, we believe that better communication does not directly affect relationship
3,1 continuity intention. Trust in the supplier plays a mediating role between
communication and relationship continuity intention.
The above arguments lead to the following hypotheses:
H2. Communication with supplier will be positively related to buying firm’s trust
in the supplier organization.
26
H2a. Trust in the supplier would mediate the positive relationship between
communication and relationship continuity intention of the buyer.

3.3 Effect of opportunistic behavior

One of the key behavioral variables that drives transaction cost analysis is opportunism.
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Opportunism is defined as “self-interest seeking guile” (Williamson, 1985, p. 58).

Examples of opportunistic behavior are acts like withholding or distorting information
and shirking or failing to fulfill promises or obligations ( John, 1984). Taking the need for
self protection into account, new institutional economics identifies a customer’s quest for
self protection against every possible supplier as the primary driver behind business
buying behavior (Williamson, 1985). Suppliers’ behavior should therefore be driven by
the goal to design offerings that comply with a customer’s need for precaution and at the
same time offer value superior to that of competitors. The most important challenge for
business selling is therefore to overcome the lack of trust from potential transaction
partners ( Jacob and Ehret, 2006). When opportunistic behavior is exhibited by the
supplier it will compel the buying firm to doubt the reliability, benevolence, and
intentionality of the supplier leading to decreased trust. Therefore, opportunistic
behavior by supplier will negatively affect the relationship continuity intention of the
buyer, as a result of decreased trust in the supplier.
The above arguments lead us to the following hypotheses:
H3. Opportunistic behavior will be negatively related to buying firms’ trust in a
salesperson.
H3a. Trust in a supplier would mediate the negative effect of opportunistic
behavior on relationship continuity intention of the buyer.

3.4 Effect of offer quality

Offer quality can be conceptualized as consisting of product quality, service quality, and
competitive price. In the steel industry, these are three important aspects for the buyer.
The importance of product quality is quite obvious, since it has a direct bearing on the
buyers’ output, cost and productivity. A study by Schorsch (1994) has illustrated the
importance of reliability and short lead time in delivery. Reliability in delivery enables
the steel buyers to reduce their inventory size, whereby they can save on their cost of
production. Short lead time helps the buyer in their production planning process,
particularly when their market is also volatile. Short lead time also helps them to order in
small lots leading to saving in inventory costs. For most of the buyers, steel forms a
major cost element in their cost structure, buyers look for a competitive price. The
competitive price of steel helps the buyers to maintain their competitiveness. Over a
period of time a better quality of offer helps in developing the confidence of the buyer
in their supplier, leading to trust in the relationship. Therefore, a better quality
 of offer leads to greater relationship continuity intention of buyers which leads to Relationship
increased trust in the supplier. building and
The above arguments lead us to the following hypotheses:
constraint
H4. Offer quality of the supplier will positively impact the trust in the supplier
organization.
H4a. Trust in the supplier will mediate the positive effect of the supplier’s offer 27
quality on relationship continuity intention of buyer.

3.5 Dependence on supplier and relationship continuity

Dependence can be defined as a firm’s need to maintain its relationship with another to
achieve its goals (Frazier, 1983). Behaviors arising because of one’s dependence on
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another are usually in the form of compliance and reflect a need-based, calculative
motivational mechanism. A buyer’s dependence on a supplier is the perception of the
buyer regarding the replaceablity or irreplaceability of the supplier and the value received
from conducting business with that particular supplier (Kumar et al., 1998). Buyers will be
tempted to maintain a relationship with a specific supplier as long as the outcomes
received from the business with the supplier are deemed more valuable than are available
from alternative relationships (Lewin and Johnston, 1997). Most studies, particularly in
distribution channels, view dependence as a determinant of a firm’s behavior and their
strategic decisions. Pfeffer and Salancik (1978) argue that since dependence is created by
trade partners who provide critical and valuable resources, it is important to manage such
resources. Thus, similar to trust, most studies have viewed dependence as a determinant
of buyers’ relationship continuity rather than a consequence of such a relationship.
The above arguments lead us to the following hypotheses:
H5. Buyers’ dependence on a supplier positively affects the relationship
continuity intention of the buyer.

3.6 Effects of relationship termination cost

In industrial markets, when buyers and suppliers are tied together in lasting
relationships, they tend to make investments which are relation specific. Rusbult (1983)
views these investments as an increasing commitment to a relationship. These
investments are relation specific and cannot be transferred from one relationship to
another instead, they are lost on dissolution of the relationship. One example of these
investments could be those people in the buyer’s organization learning about how to work
effectively with the supplier’s representative and products. Further to these investments
beeing relation specific, their salvage value or its value in another relationship is
substantially low. This gives rise to “switching cost” for the buyers for seeking an
alternate supplier. In their study, Dwyer et al. (1987) mention than a buyer’s anticipation of
high switching cost gives rise to buyers’ interest in maintaining a committed relationship.
Switching costs, resulting from termination and relationship dissolution, are therefore all
expected expenses. This means that, buyers are likely to become more dependent on their
current relationships as a substantial amount of capital has already been invested and
therefore, they would like to continue that relationship. The key issue here is that, the
relationship termination cost must be significant enough to create a dependence condition
for the buyer; however the buyer is unlikely to continue the relationship just because there
is some relationship termination cost.
 JIBR The above arguments lead us to the following hypotheses:
3,1 H6. Relationship termination cost of the buyer will positively impact the
dependence of the buyer on the supplier organization.
H6a. Relationship termination cost will not have direct effect on the relationship
continuity intention but only indirectly through dependence on the supplier
28 organization.

3.7 Effects of comparison level of alternatives

The availability of alternatives has a strong impact on the level of bonding in an existing
relationship. If there are better alternatives available, buyers would be more concerned
with those alternatives and want to change their current partner and hence the current
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relationship might end as short-term one. Alternatively, if there is limited choice before
the buyer, then there will be greater commitment to the relationship leading to long-term
orientation. Rusbult (1983), in his empirical study, notes that attractiveness of
alternatives should decrease the commitment to an existing relationship. Another study
by Mummalaneni and Wilson (1991) has empirically tested the negative impact of
comparison level alternatives on the buyers’ commitment to an existing relationship.
This means that if the outcome obtained by a buyer from the relationship with a focal
supplier exceeds the available outcome from the other alternative supplier, the buyer
will be more dependent on the focal supplier. However, lack of comparable alternatives
makes the buyer dependent on the supplier, only if the buyer does not have the ability to
integrate backwards.
The above arguments lead us to the following hypotheses:
H7. Availability of comparison-level alternatives for the buyer will negatively
impact the dependence of the buyer on the supplier organization.
H7a. Availability of comparison-level alternatives will not have direct effect on the
relationship continuity intention but only indirectly through dependence on
the supplier organization.

4. Research methodology
4.1 Sampling and measurement
The unit of analysis for this research is a specific buyer-seller relationship in the Indian
steel industry. Conceptually, it could be argued for collecting data about buyer-supplier
relationships from suppliers’ perspectives or both. However, it is usually the
buyer/customer that ultimately makes the decision of whether to purchase from a
supplier. Thus, even if the supplier and buyer have different views, it is the buyer’s view
that is likely to be determinant (Cannon and Perreault, 1999). Therefore, we elected to seek
data from buyers’ points of view. We used the IMD-2007 database published by Viva
Infomedia, Mumbai for selecting the sample of steel buyers. Steel purchasers were selected
in such a way that a major steel consuming segment was represented. In all, 400 purchasing
firms were selected. Each respondent was requested to complete the questionnaire
with respect to the characteristics of one particular relationship that the purchasing
manager was knowledgeable about. This approach is consistent with other studies in
which respondents select the focal relationship for responding to a set of questions
(Powers and Reagan, 2007; Knemeyer and Murphy, 2005; Lusch and Brown, 1996).
 The buying context is important and has been found to impact the relative importance of Relationship
relationship factors (Claycomb and Frankwick, 2004). building and
All the constructs used in the study were measured using multiple items and
respondents were asked to mark their responses on Likert-type scales. The questionnaire constraint
items were primarily drawn from literature except for offer quality[1]. Relationship
continuity intention was operationalized using the scales developed by Ganesan (1994)
and Lusch and Brown (1996). Measures for buyers’ trust in suppliers were adapted from 29
Doney and Cannon’s (1997) conceptualization of trust. The scale items measured suppliers’
credibility and benevolence. Scale items for dependence on suppliers and relationship
termination costs were adapted from Ganesan (1994). The items for relationship
termination cost measured switching cost for buyers due to transaction-specific
investment. Measures for opportunistic behavior were adapted from the work of Achrol
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and Gundlach (1999) and Zineldin and Fonsson (2000). Communication construct
measured both quality and frequency of communication and was adapted from Zineldin
and Fonsson (2000). The measures for comparison-level alternatives were selected from
the studies of Heide and John (1988), Geyskens et al. (1996), and Anderson et al. (1994).
Since an appropriate scale for the offer quality matching our research context was not
available, we developed the items for the scale by interviewing a convenient sample of ten
marketing and purchasing executives. The offer quality construct consists of three
dimensions, i.e. product quality, service quality, and price performance.
The wording of the scale items and directions and other survey procedures were
refined to suit the context of the study on the basis of a pilot study involving 25 steel
buyers. In order to minimize the non-response issue in a mail survey, a cover letter was
used, introducing the researcher, the objectives of the research, and the importance of
the survey and was addressed to the names and position of the key informants, who
were purchasing managers of customer organizations. A postage-paid reply envelope
was also enclosed for each questionnaire as part of the survey. After three months a
follow-up telephone call was carried out.
Out of the 400 Indian companies that participated in the survey, questionnaires
were received from 142 companies. After elimination of questionnaires from which
excessive amounts of data were missing, the final usable sample was 137 responses.
Our useable response rate, 35.5 percent based on total population size, is within the
range typically reported for marketing research studies. The summary of demographic
profile of sample is given in Table I.

5. Data analysis and results

5.1 The measurement model
After the pre-testing, the alpha coefficients of all the scales were above the acceptable
level of 0.60 (Nunnally, 1967) and ranged from 0.64 to 0.91.
Confirmatory factor analysis (CFA) was used to validate the convergent and
discriminant properties of the constructs. Two items of trust in suppliers, one item of
communication with suppliers, one item of opportunistic behavior, five items of offer
quality, three items of comparison level alternatives, and four items of relationship
termination costs were dropped as their loadings were found to be less than 0.5.
According to our CFA results, our measurement model suggests reasonable fit to
the data (x 2 ¼ 791.98 at 495 df (x 2/df ¼ 1.60), goodness of fit index (GFI) ¼ 0.85,
incremental fit index (IFI) ¼ 0.89, comparative fit index (CFI) ¼ 0.89, root mean square
 JIBR
Category Profile
3,1
Position
Junior level 2 (1.46%)
Middle level 45 (32.85%)
Senior level 90 (65.69%)
30 Age groups
Under 30 5 (3.65%)
30-40 47 (34.31%)
41-50 51 (37.23%)
. 50 34 (24.82%)
Sales turnover
Under Rs 100 Cr 54 (39.42%)
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Rs 101-1,000 Cr 62 (45.26%)
Rs 1,001-5,000 Cr 14 (10.22%)
. Rs 5,000 Cr 7 (5.11%)
Nature of business
Auto componets 6 (4.38%)
Capital equipment 4 (2.92%)
Construction 15 (10.96%)
Drums and barrel 6 (4.38%)
Electrical stamping 5 (3.65%)
Galvanized plain and galvanized corrugated sheets 1 (0.73%)
LPG cylider making 3 (2.19%)
Manufacturing-others 29 (21.17%)
Project 1 (0.73%)
Re-rolling 25 (18.25%)
Service centre 1 (0.73%)
Stamping 1 (0.73%)
Trading 15 (10.95%)
Tube/pipe making 22 (16.06%)
Welding electrode 2 (1.46%)
Wire drawing 1 (0.73%)
Manpower (nos)
Under 100 55 (40.15%)
101-1,000 57 (41.61%)
1,001-5,000 21 (15.33%)
. 5,000 4 (2.92%)
Length of relationship with supplier (years)
Under five 29 (21.17%)
six-ten 40 (29.20%)
11-15 21 (15.33%)
. 15 47 (34.30%)
Business headquarters
Table I. Kolkatta, Bhubaneswar, Jamshedpur, Chennai,
Demographic profile Hyderabad, Mumbai, Gaziabad, Ludhiana,
of sample Alahabad, Guwahati

error of approximation (RMSEA) ¼ 0.07). All factor loadings are high (more than 0.5)
and significant, providing strong evidence for convergent validity (Bagozzi and Yi,
1988). We also assessed composite reliability (CR) and average variance extracted
(AVE) for each of the constructs (Fornell and Larcker, 1981). The CR ranged from
0.74 (comparison-level alternatives) to 0.88 (trust in supplier) whereas AVE ranged
 from 0.43 (relationship termination cost) to 0.73 (opportunistic behavior). For the Relationship
constructs, comparison-level alternatives and relationship termination costs, the AVEs building and
were 0.43 and 0.46, respectively. Since AVE is a more stringent test of construct
reliability, overall we can conclude that the measures used in the model displayed constraint
adequate convergent validity (Table II).
The assessment of discriminant validity was conducted for all the correlated
constructs. The correlation matrices for the latent variables presented in Table III show 31
that correlation coefficients between any two constructs were significantly below unity
which supports the discriminant validity of the model. However, a stringent criterion
for testing discriminant validity, suggested by Bagozzi and Phillips (1982), is to fix
the correlation between all the pairs of the constructs at 1.0 and then employ x 2 difference
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Construct Indicators Standardized loading Reliability measures

Relationship continuity intention CONT1 0.84 CR ¼ 0.88

Mean ¼ 5.98 CONT2 0.52 AVE ¼ 0.66
SD ¼ 1.28 CONT3 0.73
CONT4 0.80
Trust in supplier TRUS2 0.87 CR ¼ 0.92
Mean ¼ 5.63 TRUS3 0.73 AVE ¼ 0.70
SD ¼ 0.95 TRUS4 0.64
TRUS5 0.73
TRUS6 0.83
Buyers’ dependence on supplier DEEND1 0.73 CR ¼ 0.86
Mean ¼ 4.55 DEPEND2 0.67 AVE ¼ 0.55
SD ¼ 1.22 DEPEND3 0.78
DEPEND4 0.78
DEPEND5 0.74
Communication with supplier COMM1 0.70 CR ¼ 0.90
Mean ¼ 4.92 COMM3 0.79 AVE ¼ 0.70
SD ¼ 1.19 COMM4 0.62
COMM5 0.90
Opportunistic behavior OPPO1 0.65 CR ¼ 0.91
Mean ¼ 2.34 OPPO2 0.73 AVE ¼ 0.73
SD ¼ 1.21 OPPO3 0.86
OPPO4 0.87
Offer quality QUAL1 0.55 CR ¼ 0.84
Mean ¼ 4.93 QUAL2 0.63 AVE ¼ 0.56
SD ¼ 1.08 PRICE1 0.56
PRICE2 0.60
PRICE3 0.83
SERV2 0.81
SERV3 0.75
Relationship termination cost RTCOST2 0.78 CR ¼ 0.78
Mean ¼ 3.41 RTCOST3 0.78 AVE ¼ 0.43
SD ¼ 1.37 RTCOST4 0.65
Comparison-level alternatives ALT1 0.75 CR ¼ 0.74
Mean ¼ 3.97 ALT2 0.68 AVE ¼ 0.46
SD ¼ 1.48
Table II.
Notes: CR, composite reliability; AVE, average variance extracted; fit statistics: (x 2) ¼ 791.98 at 495 Confirmatory factor
df (x 2/df ¼ 1.60), GFI ¼ 0.85, IFI ¼ 0.89, CFI ¼ 0.89, RMSEA ¼ 0.07 analysis
 JIBR test for constrained and unconstrained models. A significantly lower x 2 value for the
3,1 model in which construct correlation between pairs are not constrained would indicate
the constructs are not correlated and therefore suggest discriminant validity. Our results
suggested that the minimum x 2 difference between unconstrained and constrained
models was more than 5.90 ( p , 0.01). Thus, our model demonstrated improved model
fits when the constructs were separated and hence discriminant validity was achieved.
32
5.2 Results of research hypotheses
After achieving a satisfactory fit in the measurement model, the structural model shown
in Figure A1 was tested via covariance structure analysis using AMOS 4.0. The GFIs
were then evaluated to determine if the hypothesized model could be considered reliable
in testing the hypotheses. The path model fit statistics (x 2 ¼ 29.87 at 11 df; p , 0.001
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(x 2/df ¼ 2.72), GFI ¼ 0.95, adjusted GFI ¼ 0.84, normed fit index (NFI) ¼ 0.91,
IFI ¼ 0.94, CFI ¼ 0.94, standardized root mean square residual (SRMR) ¼ 0.09,
RMSEA ¼ 0.08) suggested a reasonable fit of data. As per two index strategy suggested
by Hu and Bentler (1999), CFI should be 0.95 or higher and SRMR should be below 0.09.
Though CFI just fell short of the standard suggested by Hu and Bentler, other fit indices
like GFI and IFI were above the general guideline of 0.9. The RMSEA was below 0.08.
Therefore, the hypothesized model was considered fit to proceed with further analysis.
Next we present the result of the hypotheses tests depicted in Table IV.
Based on the result of the path analysis, H1, H2, H3, H4, H6, and H7 were
supported but H5 was not.
Based on the result of mediation analysis, H2a, H3a, and H4a were supported but
H6a and H7a were not.

5.3 Tests for mediation model

For testing the mediating effect of the predictor variables, we ran a series of models
that included an additional path from a particular exogenous variable to relationship
continuity intention. If a direct effect exists between two constructs, we would observe
the fit of the model to improve compared to our baseline mediated model. On the other
hand, if no direct effect is present and only indirect effect is at work, the new model
would not improve significantly beyond our current baseline mediated model despite
adding the additional path. The result of the mediation test is given in Table IV.
Looking at the results presented in Table IV, we can summarize the findings as
follows:

1 2 3 4 5 6 7 8

1. RTCOST
2. ALT 20.31 * *
3. OQUAL 20.10 2 0.23 * *
4. COMM 20.03 2 0.12 0.49 * *
5. OPPO 0.34 * * 2 0.16 20.33 * * 20.39 * *
6. CONT 20.21 * 2 0.02 0.42 * * 0.34 * * 2 0.38 * *
Table III. 7. TRUS 20.10 2 0.14 0.62 * * 0.59 * * 2 0.52 * * 0.51 * *
Correlation between 8. DEPEND 0.29 * * 2 0.48 * * 0.29 * * 0.26 * * 2 0.04 0.14 0.35 * *
various constructs
of the model Note: Correlation significance at: *0.05 and * *0.01 levels (two tailed)
 Relationship
Fit indices for the
Hypothesis Coefficient x 2 Diff. test mediated model building and
H1. Trust ! Continuity (þ) 0.52 * * (x 2) ¼ 29.87 at 11
constraint
H2. Communication ! Trust in supplier (þ) 0.23 * * x 2 (10) ¼ 29.32a df; p , 0.001
H2a. Communication ! Continuity (þ ) dx 2(1) ¼ 0.55 (x 2/df ¼ 2.72),
indirectly via trust in supplier GFI ¼ 0.95, 33
H3. Oppo behavior ! Trust in supplier (-) 20.23 * * x 2(10) ¼ 29.87b adjusted
H3a. Oppo behavior ! Continuity (þ) dx 2(1) ¼ 0 GFI ¼ 0.84,
indirecly via trust in supplier NFI ¼ 0.91,
H4. Offer quality ! Trust in supplier (þ ) 0.34 * * x 2(10) ¼ 27.22c IFI ¼ 0.94,
H4a. Offer quality ! Continuity (þ) indirecly dx 2(1) ¼ 2.65 CFI ¼ 0.94,
via trust in supplier RMSEA ¼ 0.08,
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H5. Dependence on supplier ! Continuity (þ ) 0.03ns SRMR ¼ 0.09

H6. Relationship termination 0.14 * Since dependence
cost ! Dependence on supplier (þ ) did not affect
H6a. Relationship termination relationship
cost ! Continuity (þ ) indirecly via trust continuity,
in supplier mediation test not
required
H7. Comparison level alt. ! Dependence on 20.36 * * Since dependence
supplier (2 ) did not affect
H7a. Comparison level alt. ! Continuity (þ ) relationship
indirecly via trust in supplier continuity,
mediation test not
required
Notes: *p , 0.05 and * *p , 0.001; critical dx 2(1) . 3.9 at p , 0.05; aa model where a direct path
between communication and relationship continuity was added; ba model where a direct path between
opportunistic behavior and relationship continuity was added; ca model where a direct path between Table IV.
offer quality and relationship continuity was added Result of hypotheses test

.
Trust in the supplier fully mediates the positive relationship between
communication and relationship continuity intention of buyer.
.
Trust in the supplier fully mediates the positive effect of offer quality on
relationship continuity intention.
.
Trust in the supplier fully mediates the negative effect of opportunistic behavior
on relationship continuity intention.
.
Dependence on the supplier does not mediate the effect of relationship
termination cost and comparison-level alternatives on relationship continuity
intention.
Next we discuss the theoretical and managerial implications of our findings.

6. Discussion and implications

6.1 Discussion and theoretical implications
Several theoretical implications can be drawn from our findings. Our first contribution
relates to inclusion of both behavioral and economic antecedents of trust. Most of the
prior studies in BtoB buyer-seller relationships have focused on behavioral or economic
antecedents of trust, but rarely have both aspects been studied together. The economic
 JIBR antecedents captured through offer quality construct largely refer to the performance/
3,1 execution aspect. Our study’s findings suggest that there is interplay of behavioral and
economic factors. Starting with behavioral factors, our study confirms that even in BtoB
environments like steel, trust is formed via a supplier’s relational behavior.
In most of the past studies, performance aspect has been largely studied as an
antecedent to satisfaction. However, with respect to economic factors, it is evident that
34 the performance aspect of the supplier does, in fact, influence buyers’ trust in suppliers.
We find that the offer quality aspect has the highest effect on trust in the supplier;
pointing to the fact that buyers also need tangible evidence to develop trust in the
relationship. Good performance in technical quality and cost effectiveness over repeated
transactions may provide evidence to suggest credibility of the supplier which also
means that the supplier can be trusted. In our study, overall offer quality has the highest
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effect on trust in the supplier (b ¼ 0.34) followed by communication (b ¼ 0.23) and

opportunistic behavior (b ¼ 2 0.23). The effect of economic/performance factors on
trust have not been well documented in trust literature which largely ignores this aspect.
The next contribution of this study is the broad-based framework that has been used to
study a very important outcome of BtoB marketing, i.e. buyers’ relationship continuity
intention. In our theoretical model, we have considered constrained-based factors and
dedication-based factors that possibly predict relationship continuity intention. The result
of our study indicates that it is the dedication-based factors and not constraint-based
factors that predict relationship continuity intention of buyers in BtoB relationships.
Our findings provide further support for previous conclusions regarding trust’s role
as a relationship enhancer in buyer-seller relationships (Doney and Cannon, 1997;
Ganesan, 1994; Morgan and Hunt, 1994). We demonstrate that trust mediates the
influence that opportunistic behavior and communication has on relationship continuity
intention of buyers. Additionally, trust is also shown to mediate the influence of offer
quality on the relationship continuity intention of buyers. Our study, therefore again
establishes the role of trust as a KMV and in the process provides external validity for
the KMV model of Morgan and Hunt (1994).
Comparison-level alternatives (b ¼ 2 0.36) and relationship termination cost
(b ¼ 0.14) have significant effect on dependence on supplier. However, dependence on
the supplier does not predict buyers’ relationship continuity intention. Ganesan (1994)
also finds a low effect of dealer dependence on long-term relationships. Though Sezen
and Yilmaz (2007) report that relational behavior requires both trust and dependence,
the result of our study could be attributed to the context of industrial marketing in the
post liberalization era. Prior to liberalization there were only limited steel suppliers due
to licensing restrictions. However, in post-liberalization there are now a number of steel
suppliers in India and therefore a steel buyer has ample choice from which to select their
supplier. The buyer is not dependent on any supplier only on account of lack of choice.
Whenever faced with adverse supplier choice, buyers have integrated backwards to
reduce their dependence on any specific supplier. It is also evident that the steel suppliers
have not really made any significant relationship-specific investments which can lead to
significant switching costs. Hence, the buyer does not feel constrained to continue a
relationship with a particular supplier on account of this issue.
Finally, despite the importance of core sector industries like steel in a developing
country like India, there exists hardly any research that addresses the issues on
 building and maintaining trusting relationships in an industry like steel. This study Relationship
therefore extends the research in BtoB relationships in a relatively unexplored context. building and
Next we discuss several managerial implications arising from our findings.
constraint
6.2 Managerial implications
Steel marketing managers generally focus on the traditional marketing mix,
highlighting product features, price, and delivery in their marketing strategy. 35
However, like previous studies, our study has once again established that even in a
BtoB market like steel, trust is the central tenet of customer retention. Since scope for
product differentiation is very limited in the steel business, the benefits of trust become
more critical. As a result, the role of trust in fostering long-term relationships takes on
added importance in an industry like steel.
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In order to build trust in a BtoB relationship, our study suggests that steel suppliers
should invest in both economic and behavioral aspect of transaction. Better
communication and less opportunistic behavior (sometimes also referred as sales
orientation) help in developing the trust of the buyer. Communication can be formal or
informal and have dimensions of frequency and quality. Therefore, supplier firms need
to create multiple communication channels like dedicated communication networks,
product application catalogues, mailers, and dynamic web sites. More frequent
interactions reduce uncertainty, enhance mutual understanding, and assure the buyer
that the supplier’s intentions are in the buyer’s best interest. Our findings suggest that,
steel suppliers should desist from indulging in opportunistic behavior (sales orientation)
for short-term gain. In the long run neither the seller nor the buyer benefits from such
behavior. As mentioned earlier, Alajoutsijarvi et al. (2001) conclude that one of the main
reasons for the cyclicality in commodity industries like steel, fine paper, and copper is
due to short time perspective regarding prices and volumes within the buyer-seller
relationship. Our findings suggest the need to train employees of steel companies to
recognize the intangible aspects of the relationship with the buyer. Suppliers should
clearly communicate to their employees regarding the futility of opportunistic behavior
like withholding valuable information, providing false information, and giving false
promises. Additionally, suppliers should put in place performance management systems
in their organizations that do not encourage opportunistic behavior in their salespersons.
The emphasis on relational behavior should not undermine the importance of offer
value. While a superior offer may not be sufficient to garner a greater share of a buyer’s
business or earn a buyer’s loyalty, building trust requires that relational behavior be
augmented by “hard” evidence that a buyer’s future needs will be met.

6.3 Limitations and future research direction

The primary limitation of our study pertains to the choice of research design. The
study has covered the perception of buyers only and therefore the views can be one
sided. However, since it is the buyers who ultimately decide the fate of a buyer-seller
relationship, in case of difference of perception, the views of buyers will prevail. In an
open market regime when steel supplies are not restricted to few suppliers, it is the
buyer’s perception that will decide the fate of a buyer-seller relationship.
The second limitation of the study was regarding the design of the questionnaire.
We kept the option open for the purchasing managers to select a particular focal
supplier when responding to the questions in the questionnaire. The only condition
 JIBR was that they should be familiar with that particular supplier. Therefore, there might
3,1 have been a tendency for the respondents to select a particular supplier with whom
they have good relationship. In our study, 78 percent of the buyers responded about
relationships that are more than five years old.
Though the findings of our study are quite significant, the research context is limited.
Future studies in BtoB context should include both long-term and transactional
36 customers. Further, future studies in this area should focus on specific contextual factors
like organizational culture, business environment, and product complexity. Existing
literature points to circularity of cause and effects among the various variables and since
most of the studies are quantitative and cross sectional in design, we will be able to
enhance our understanding of the interaction among various variables by focusing on
qualitative case-study based research.
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Note
1. Questionnaire items and their sources are given in Appendix 1.

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Appendix 1. Items used in the study

1. Measures of relationship continuity: (four items)
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Source: Lusch and Brown (1996) and Ganesan (1994):

(1) We expect our relationship with our major supplier to continue a long time.
(2) Renewal of the relationship with this supplier is virtually automatic.
(3) Our relationship with this supplier is enduring.
(4) Our relationship with this supplier is a long-term alliance.

2. Measures of buyers’ trust in supplier: (seven items)

Source: Doney and Cannon (1997):
(1) This supplier keeps promises it makes to our firm.
(2) We believe the information that this supplier provides us. *
(3) This supplier is genuinely concerned that our business succeeds.
(4) When making important decisions, this supplier considers our welfare as well as its own.
(5) We believe that this supplier keeps our interest in mind.
(6) This supplier is trust worthy.
(7) We have found that it is necessary to be cautious with this supplier. *

3. Measures of buyers’ dependence on supplier: (seven items)

Source: Ganesan (1994):
(1) If our relationship was discontinued with this supplier, we would have difficulty in
meeting the demands of our customers.
(2) This supplier is very important to our future performance.
(3) It would be difficult for us to replace this supplier.
(4) We are dependent on this supplier.
(5) If our relationship were discontinued; we would have difficulty replacing this supplier.
(6) We are important to this supplier. *
(7) We are a major customer for this supplier. *

4. Measures of opportunistic behavior (five items)

Source: Achrol and Gundlach (1999) and Zineldin and Fonsson (2000):
(1) This supplier has not always been sincere.
(2) This supplier altered facts to get what they want.
 JIBR (3) This supplier has breached formal and informal agreements to their benefit.
3,1 (4) This supplier has always provided completely truthful picture when negotiating.
(5) This supplier does not give us appropriate and important data/facts. *

5. Measures of communication with supplier (five items)

40 Source: Zineldin and Fonsson (2000):
(1) This supplier keeps us informed of new developments in research and development in
their company.
(2) The supplier gives us immediate information of any delivery problems immediately
when they occur. *
(3) The supplier’s sales personnel frequently visit our place of business.
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(4) The supplier spends lots of time to get to know our personnel and employees.
(5) The supplier frequently discusses new possibilities with us.

6. Measures of comparison-level alternatives (five items)

Source: Heide and John (1988), Geyskens et al. (1996) and Anderson et al. (1994):
(1) There are other companies who can supply our steel requirements.
(2) All suppliers of steel products are about the same and we do not have any preference to
buy from anyone of them.
(3) It would be difficult to find a better supplier than the current supplier. *
(4) To change this supplier would involve buying from a firm that is clearly inferior to our
current supplier. *
(5) Working together with this supplier puts less strain on our organization than does
working with other potential suppliers. *

7. Measures of relationship termination cost (seven items)

Source: Ganesan (1994):
(1) We have made significant investment dedicated to our relationship with this supplier. *
(2) If we switched to a competing supplier, we would lose a lot of investment we have made
for this supplier.
(3) Our company has invested substantially in personnel dedicated to this supplier.
(4) If we decide to stop working with this supplier, we would be wasting a lot of knowledge
gained while doing business with them.
(5) The supplier has gone out of their way to link us with their business. *
(6) The supplier has made changes to their procedures to meet the specific needs of our
company. *
(7) It would be difficult for this supplier to recoup its investments in us if they switched to
another customer. *

8. Offer quality (12 items)

Source: Field study:
8.1 Measures of product quality (four items)
(1) Steel from this supplier is consistently good.
 (2) The supplier provides the best quality of steel in the industry. Relationship
(3) The steel we obtain from this supplier substantially improves the productivity in our building and
production processes. *
(4) We sometimes have to reject supplied goods and return them to supplier. *
constraint

8.2 Measures for service quality (five items) 41

(1) The steel supplier is able to provide wide range of products, which meets my total
requirements. *
(2) This supplier always provides service when it is promised.
(3) The service people from this supplier are able to solve all our service problems.
(4) Service from this supplier is always provided very courteously. *
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(5) The supplier is very quick to respond to our quality complaints. *

8.3 Measures for price performance (three items)

(1) The supplier is able to provide steel that is competitively priced.
(2) This supplier gives us volume discount for many products that we buy from them.
(3) We often buy specially discounted products from this supplier.

Note: *Dropped from final analysis

Appendix 2

Offer quality

Communication Trust in supplier

with supplier firm

Relationship
continuity intention
Opportunistic
behaviour

Dependence on
supplier firm
Comparison level
alt.

Relationship Figure A1.

termination cost The research model
 JIBR About the authors
Satyajit Jena is Senior Faculty Member in the Corporate Training Institute of Steel Authority of
3,1 India Ltd Pursuing Doctoral Programme at VGSOM, IIT, Kharagpur. Specialises in Marketing
Strategy, BtoB Marketing and Strategic Management. Satyajit Jena is the corresponding author
and can be contacted at: satyamti@gmail.com
K.K. Guin is Professor and Associate Dean at Vinod Gupta School of Management,
IIT Kharagpur. Specialises in Marketing, Marketing Research, Business Modelling.
42 S.B. Dash is Assistant Professor and Area Chair in Marketing Area. Speciae in Marketing,
Relationship Marketing, and Marketing Research.
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