Seemingly embedded but obviously exploitative relations: Organizational contingencies of mutual dependence, power imbalance and embedded relations

Published date01 March 2016
Date01 March 2016
DOIhttp://doi.org/10.1111/emre.12066
Seemingly embedded but obviously
exploitative relations: Organizational
contingencies of mutual dependence, power
imbalance and embedded relations
S¸ükrü Özen1,Özgür Özmen Uysal2,Mehmet Çakar3
1Yıldırım Beyazıt University, Ankara, Turkey;
2Independent researcher;
3Bas¸kent University, Ankara, Turkey
We examine effects of mutual dependence and power imbalance on embedded relations between organizations
in an industrial district setting. Employing qualitative methodology, we conducted an exploratory research on
manufacturer-retailer relations in the Siteler Furniture District in Ankara. The findings indicated that manufactu-
rer’s size and retailer’s competitive strategy shape their dependencies and embedded relations.Illustrating various
patterns of relationships for different combinations of size and strategy in manufacturer-retailer dyads, we found
that mutual dependence enhances embedded relations. We also found that power imbalance does not necessarily
hinder them, but generates one-sided relations: the moredependent party tries to build them at the expense of being
exploited by the less dependent one. Our study implies that embedded relations may entail exploitation particularly
in governed networks where power inequalities are high.
Keywords: embedded relations; mutual dependence; power imbalance; industrial districts.
Introduction
Embeddedness has been known as an important charac-
teristic of industrial districts (Storper, 1995; Staber and
Morrison, 1999). Embeddedness is argued to preclude
opportunistic behavior, facilitate trust building, and
ultimately, minimize transaction costs (Granovetter,
1985; Uzzi, 1996). In parallel with this, it has generally
been assumed that power is symmetrically distributed
between organizations within industrial districts
(Markusen, 1996), particularly when they are built upon
a heritage of strong, socially embedded ties (Özcan,
2004). However, more recent literature has recognized
that a small number of vertically integrated local or
international firms, which may be external or internal to
an industrial district, or public institutions may dominate
other firms in the district (Markusen, 1996). Although
acknowledged, power imbalance has been a neglected
issue in the industrial district literature, particularly its
implications for embedded relations (see for reviews,
Martínez-Fernández et al., 2012; Hervas-Oliver et al.,
2015).
In fact, power imbalance in inter-organizational rela-
tionships has long been studied through the perspectiveof
resource dependence theory (Pfeffer and Salancik, 1978).
Recent studies tackling this issue (Casciaro and
Piskorski, 2005; Gulati and Sytch, 2007) have shown
that increasing power imbalance, or asymmetry is
detrimental to embeddedness and has a negative impact
on organizational performance. In contrast, increasing
mutual or joint dependence between organizations helps
constructing embedded relations, which influence
organizational performance positively. However, some
other studies have shown that relationships between
power imbalance, mutual dependence and embeddedness
can be more complicated. For instance, power imbalance
and embedded relations may coexist in retailer-supplier
relations, in contrast to the common belief that they are
mutually exclusive (Hingley, 2005). Furthermore, long-
term and non-contractual relations, which are seemingly
Correspondence: S¸ükrü Özen, Yıldırım Beyazıt University, Ankara,
Management School, Cinnah Caddesi No: 16, 06680 Kavaklıdere/
Ankara, Turkey e-mail: sozenbaskent@gmail.com
DOI: 10.1111/emre.12066
© 2015 European Academy of Management
European Management Review, Vol. 13, (201 )
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embedded, may involve systematic exploitation of the
less powerful organizations by the more powerful ones
(Oba and Semerciöz, 2005). These mixed results call for
further studies that focus on when mutual dependence
and power imbalance are beneficial or detrimental to
embedded relations within the context of industrial dis-
tricts. Earlier research has generally focused on factors
such as opportunism or knowledge redundancy, which
mediate the impact of embedded relations on outcome
variables, such as innovation (Noordhoff et al., 2011).
There are also studies that examine howtrust mediates the
relationship of mutual dependence and power imbalance
to manufacturer’s performance (Gulati and Sytch, 2007).
However, contingencies that shape the relationships
between dimensions of interdependence and embedded
relations have not been studied.
This paper aims at further expanding literature on the
effects of mutual dependence and power imbalance on
embeddedness by taking into account contingencies that
influence the relationships between these constructs.
Following the strategy of developing theoretical propo-
sitions from case study research (Eisenhardt, 1989), we
particularly focus on how contingency factors govern
the relationship between mutual dependence and power
imbalance, and their impact on embedded relations. To
this end, we examine the relationships between manu-
facturers, retailers, and suppliers in the Furniture District
in Ankara (hereafter Siteler, as it is commonly known).
Employing the narrative method consistent with our
inductive methodology, we analyzed the interview data
collected from 25 participants representing key actors in
Siteler, such as manufacturers, retailers, suppliers, occu-
pational associations, and local public agencies. In doing
so, we identified organizational size of manufacturers
and competitive strategy of retailers as two important
contingency factors that shape inter-organizational
dependencies. Based on the theoretical propositions
derived from this analysis, we also develop a model that
explains how various combinations of manufacturer-
retailer dyads, which differ in terms of size and strategy,
involve various patterns of power imbalance, mutual
dependence, and consequently embedded and exploita-
tive relations.
Our study provides four significant contributions to
the resource dependence, inter-organizational relations,
and industrial districts literatures. First, it introduces
organizational size and competitive strategy as two con-
tingency variables that moderate the influence of mutual
dependence and power imbalance on embeddedness.
Second, it suggests that while mutual dependence
enhances embedded relations, power imbalance may not
necessarily be detrimental to embedded relations. Con-
trary to the extant literature, power imbalance may also
enhance embeddedness because the more dependent
party may attempt to build embedded relations with the
less dependent one. Third, embedded relations may
involve exploitation. Specifically, dyads where power
imbalance endures display exploitation of the more
dependent party by the less dependent one. Finally,
industrial districts need not be conducive to embedded
relations. Where governed networks with powerinequal-
ities exist, arms’ length or even exploitative relations
that are seemingly embedded may prevail.
The rest of this paper comprises four sections. In the
first section, we discuss ambiguities and gaps in relevant
literature regarding the relationships between power
imbalance, mutual dependence, and embedded relations,
and their contingencies. In the second section, we
present our research methodology and findings. In the
third section, we develop a conceptual model based on
the propositions developed in the previous section.
Finally, we discuss our study’s implications for literature
on interorganizational relationships as well as manage-
ment practice, together with limitations and suggestions
for future work.
Theoretical background
According to Marshall (1920), industrial district refers
to the geographical concentration of relatively small
firms specialized in different phases of the same pro-
duction process, which may be considered a manufac-
turing system alternative to the large, vertically
integrated firms in which all functions are carried out
under one roof (Becattini, 2002; Belussi, 2004). Indus-
trial districts are claimed to be advantageous in terms
of: (1) external economies due to easy access to spe-
cialized labor and raw materials as well as specialized
firms in different phases of the same production
process; (2) transaction cost reductions due to the con-
struction of trust-based and long-term relationships
between firms; (3) increasing innovativeness due to
effective information-sharing and learning experiences;
and (4) higher contribution to regional development by
small firms due to their adaptation to global competi-
tion (Amin and Thrift, 1994; Storper, 1995; Belussi
and Sedita, 2012).
These benefits of industrial districts emanate from
their three characteristics: geographical proximity of
member firms, inter-firm cooperation, and embeddedness
(Staber and Morrison, 1999). Geographic proximity pro-
vides small firms with less costly access to local infra-
structures, specialized labor, raw materials, and
production technologies. It makes it also easier for firms
to obtain knowledge about products, technologies, and
the market. Furthermore, firms in industrial districts
cooperate with each other because they are specialized in
different phases of the same production chain. High
interdependence between specialized firms leads to rapid
sharing of explicit and implicit knowledge, and facilitates
interactive learning processes (Staber and Morrison,
S¸. Özen et al.
© 2015 European Academy of Management
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