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The Moderating Effect of Negotiation on the Buyer Seller Relationship Level and Performance in Transport Logistics Firms in Mombasa County

  • Asha Mohamed
  • Stanley Kavale
  • Zura Mohamed
  • 131-141
  • Dec 4, 2024
  • Management

The Moderating Effect of Negotiation on the Buyer Seller Relationship Level and Performance in Transport Logistics Firms in Mombasa County

Asha Mohamed1, Dr. Stanley Kavale2, Dr. Zura Mohamed3

1,3Department of Marketing & Logistics, Moi University

2Department of Management Science & Entrepreneurship, Moi University

DOI: https://dx.doi.org/10.47772/IJRISS.2024.814MG0013

Received: 05 November 2024; Accepted: 13 November 2024; Published: 04 December 2024

ABSTRACT

A dependable procurement system is one created to improve accuracy, efficiency, effectiveness and speed. The general objective of the study was to investigate the moderating effect of negotiation on the buyer seller relationship level and performance in transport logistics firms in Mombasa County. The specific objectives of the study were; to assess the effect of adversarial pairing relationship level, barometric relationship level, complementary relationship level and moderating effect of negotiation and performance in transport logistics firms in Mombasa County. This study employed the social exchange theory, negotiation theory, transaction cost theory and the buyer supplier optimization theory. The study used explanatory research design. The target population was 188 transport logistics firms in Mombasa County and Yamane sampling formula was used to generate a sample size of 127 transport logistics firms. The results indicated that adversarial relationship level, barometric relationship level, complementary relationship level and negotiation positively and significantly affect performance in transport logistics firms in Mombasa County. The results further showed that negotiation positively moderated the relationship between adversarial relationship level, barometric relationship level, complementary relationship level and performance in transport logistics firms in Mombasa County. The study concluded that adversarial relationship level, barometric relationship level, complementary relationship level have significant effect on firm performance while negotiation positively moderated the relationship between. This study recommended that managers should improve on adversarial relationship level, barometric relationship level, complementary relationship level and negotiation to increase firm performance.

INTRODUCTION

Firm performance focuses on the effectiveness or success of a firm, employee performance, ability to create value for customers, productivity, flexibility and adaptability, the achievement of goals, and stakeholder satisfaction (Taouab and Issor, 2019). Firm performance is a set of financial and non-financial indicators that provide information on the accomplishment of objectives and results. Financial measures are usually lagging measures of performance, while non-financial measures are leading measures of performance that provide insight about future performance (Ahmad & Sabri, 2016). Non-financial or subjective performance measures include employee satisfaction (employee turnover, investments in employees development and training, and organizational climate), customer satisfaction (number of complaints, repurchase rate, customer retention), environmental performance (recycling, material usage, energy consumption, pollution, and waste), and social performance (employment of minorities, contribution to social causes) (Selvam, et al., 2016).

How firms manage supplier relationships is increasingly critical to firms’ operational efficiency, product development, profitability and long-term prosperity, and is becoming a strategic issue in procurement performance. When buyers treat their suppliers as allies and share strategic information with them, they can achieve better lead times and quality, increase operating flexibility, and establish long-term cost reductions, all of which could help these firms enhance value for the ultimate customer. The benefits that result from collaborative relationships come in the form of a firm’s ability to engage suppliers and other partners in mutually beneficial value exchanges. Indeed, relationships are considered to be resource and therefore form part of a buyer-supplier relationship firm’s capital (Mohanty, & Gahan, 2015).

The degree of trust, commitment, frequency of communication, relationship duration, and the reputation of both buyers and suppliers helps in distinguishing between the relationships, and consequently affect the decision of buyers and suppliers regarding the type of relationship they are willing to engage in (Wagner et al. 2011). Companies compete in head-to-head battles for market share and position with other organizations in their competitive sets. In such competitive environments, suppliers are often treated in an adversarial manner by procurers, as the relationship between procurers and suppliers is viewed as a win–lose situation. However, many forward-looking companies have found it more effective to work collaboratively with their suppliers to serve the ultimate customer. Terms such as alliances, partnerships, collaborative relationships and boundary less organizations have been used to describe these new buyer–supplier relationships (Terpend, Tyler, Krause, & Handfield, 2016). Today, buyer–supplier relationships have become “strategic” and the process of relationship development is accelerated as firms strive to create relationships to achieve their goals. An important phenomenon related to buyer–supplier relationships is that many procurers are developing single source suppliers because of the pressure to increase quality, reduce inventory, develop just-in-time systems and decrease time to market. The ultimate goal in developing these capabilities is to reduce costs (Kumar & Rahman, 2016).

Statement of the Problem

A dependable supply chain system is one created to improve accuracy, efficiency, effectiveness speed and overall firm performance. Despite the steps taken to maximize benefits of supply chain relationships, firm performance still remains a big challenge to managers as firm failure is still evident. When buyers treat their suppliers as allies and share strategic information with them, they can achieve better lead times and quality, increase operating flexibility, and establish long-term cost reductions, all of which could help these firms enhance value for the ultimate customer. The benefits that result from collaborative relationships come in the form of a firm’s ability to engage suppliers and other partners in mutually beneficial value exchanges. Indeed, relationships are considered to be resources and therefore form part of a buyer-supplier relationship firm’s capital (Mohanty, & Gahan, 2015). Poor buyer seller relationships can jeopardize and limit the benefits derived from both parties. Maintaining good relations with a supplier should be as important to a contract administrator/end user as getting the best price (Dwyer, Schurr & Oh, 2007).

The relative cost of moving goods in Africa is one of the highest in the world, leading to up to 75% of a product cost’s going to logistics (compared to 6% in the US). These costs seriously erode the competitiveness of goods exported by East African countries, thus reducing trade, economic growth, job creation and overall firm performance. On average, Kenyan trucks are presently doing 60,000 – 96,000 KMs/truck/year driving transport costs to an estimated 30% of the value of traded goods. In the most efficient trade corridors, the average KMs/truck/year is between 120,000 to 150,000 translating into significantly affordable transport and logistics costs of up to an average 4% of the value of traded goods (KTA, 2021). With poor buyer seller relationship, the costs can go further, denting the performance in the transport logistics firms in Kenya.

Amoako-Gyampah et al. (2019) noted that investments into relationships enhance competitive advantage for the firm. Makkonen, Nordberg, Davies &Olkkonen (2018) indicate that value co-creation in relationship adds to performance of all players. Wölfel & Grosse-Ruyken (2020) found out that most opportunistic partner benefits from relationships while Jääskeläinen (2021) noted that relational benefits of buyer-supplier relationship add to firm’s performance. A gap still exists.

Study Objectives

This study was guided by both the general objective and specific objectives.

General Objective

The general objective of this study was to establish the moderating effect of negotiation on the buyer seller relationship level and performance in transport logistics firms in Mombasa County.

Specific Objectives

The study will be guided by the following specific objectives;

  1. To assess the effect of adversarial pairing relationship level on the performance in transport logistics firms in Mombasa County.
  2. To establish the effect of barometric relationship level on the performance in transport logistics firms in Mombasa County.
  3. To determine the effect of complementary relationship level on the performance in transport logistics firms in Mombasa County.
  4. To examine the moderating effect of negotiation on the buyer seller relationship level and performance in transport logistics firms in Mombasa County.

Research Hypotheses

The study was guided by the following research hypothesis;

Ho1: Adversarial pairing relationship level has no significant effect on the performance in transport logistics firms in Mombasa County.

Ho2: Barometric relationship level has no significant effect on the performance in transport logistics firms in Mombasa County.

Ho3: Complementary relationship level has no significant effect on the performance in transport logistics firms in Mombasa County.

Ho4a: Negotiation has no significant moderating effect on Adversarial pairing relationship level and t performance in transport logistics firms in Mombasa County.

Ho4b: Negotiation has no significant moderating effect on Barometric relationship level and performance in transport logistics firms in Mombasa County.

Ho4c: Negotiation has no significant moderating effect on Complementary relationship level and performance in transport logistics firms in Mombasa County.

LITERATURE REVIEW

Theoretical Framework

The study will be guided by social exchange theory, the negotiation theory, the transaction cost theory and the buyer seller optimization theory.

Social Exchange Theory – anchor theory

The Social Exchange Theory makes assumptions in two fields. Assumptions about the nature of the human behavior are that, human beings seek remunerations and awards and are simultaneously trying to avoid penalties (Nammir et al., 2012). According to Helm, Rolfes and Günter (2006), the basic assumption is that human beings strive for a positive outcome when considering rewards and costs of a relationship to optimize their satisfaction level. Within the Social Exchange Theory, transactions are bidirectional, meaning that there is mutual exchange of material things, where something has to be given in exchange of something else in a given environment (Cropanzano & Mitchell, 2005). Social Exchange Theory assumes that individuals take part in an exchange only when they expect their rewards from it to justify the cost of participation. It means buyer supplier relationship is mutual and there is equitable sharing of resources and benefits. However, in the Social Exchange Theory, there is no guarantee for reciprocal rewards after investing costs or money due to lack of contractual obligations. Hence, the purpose of an exchange is, to maximize benefits and simultaneously minimize costs in a given environment, which would lead to a positive outcome (Nammir et al., 2012), In accordance with Social Exchange Theory, behavioral aspect is important, as it leads to omitted and improved business relationships, which in turn lead to an increase in procurement performance.

Negotiation Theory -Menkel-Meadow (2009)

Negotiation is not about maximizing individual gain but about looking for “joint gain” (not the same thing as the overly optimistic “win–win,” (Menkel‐Meadow, 2009) for all of the parties. The key is to find solutions that “expand the pie” and increase what is available before anything has to be divided. Key factors in negotiation include; do not assume scarcity of resources or possible solutions as the process also matters. Collaborate, do not compete or engage in unnecessary and wasteful compromise either. The process used affects the outcomes achieved, whereas relationships matter, to distinguish one‐off negotiations from those with ongoing relationships (personal, commercial, or diplomatic). Negotiation should no longer separate the people from the problem so easily but take the people and their problems seriously too.  Moreover, in a relationship, each party should get help when necessary, use third‐party mediators and facilitators, interview clients and counterparts, and get information from many sources (Menkel‐Meadow, 2009).

Transaction Cost Theory

This theory suggests that conducting transactions is a costly endeavor, negotiating contracts, monitoring performance and resolving disputes and different modes of organizing transactions within a market or a firm entail different costs. Hence, according to this theory, a comparative examination of the relative transaction costs or their indicants of these alternative modes reveals how a particular transaction should be conducted. Transaction cost theory aims to answer the question of when activities would occur within the market and when they would occur within the firm. Whether activities would be internalized within a firm depended on their transaction costs (Rindfleisch, 2019). Transactions broadly as transfers of goods or services across interfaces, and that when transaction costs were high, internalizing the transaction within a hierarchy was the appropriate decision. Conversely, when transaction costs were low, buying the good or service on the market is a preferred option. Three dimensions are key to characterizing transactions: uncertainty, frequency, and asset specificity, or the degree to which transaction-specific expenses are incurred. Transaction cost theory is built on assumptions of bounded rationality and opportunism, defined as self-interest with guile (Williamson, 2010). This theory is very important in this study as it ascertains the importance of price and cost saving which is a key factor in procurement performance.

Buyer Supplier Optimization Theory

The optimization theory states that in every relationship, every party strives to maximize or optimize his or her benefits. These benefits may be social, financial, material, political or otherwise. The core of achieving a successful supply chain is through the effective management of buyer-supplier relationships. Therefore, in order for buyers and suppliers to reach a more sustainable and successful relationship, both have to realize the benefit they will gain from managing such relations (Ambrose et al. 2010). Buyer-supplier relationships benefits should be quantified to make the relationship a mutual benefit relationship. Just like in strategic alliance agreements, partners easily pull out of mutual relationships. Since every party is out to maximize his or her wellbeing; goals, objectives and interests are key in mutual relationships. Even though it may look selfish, optimization theory is important in this study because partners put their interests, needs, goals and aspirations as a priority. It is the optimization of these interests, needs, goals and benefits that matter in procurement transactions (Daniel, 2012).

Conceptual Framework

Conceptual Frame Work

Fig 2.1 Conceptual Frame Work

Source: Researcher, 2021

RESEARCH METHODOLOGY

This study used positivism research philosophy to help the researcher operationalize the concepts, formulate hypotheses which was tested and provided the empirical explanations to the causes and effects relationship between variables (Saunders et al., 2017). Explanatory research design was used to test moderating effect of negotiation on adversarial buyer seller relationship, barometric buyer seller relationship level and complementary buyer seller relationship level and procurement performance of transport logistics firms in Mombasa County. The target population was 188 transport logistic firms in Mombasa County and a sample size of 188 firms derived using the Yamane, (1973) sample size calculation formula was derived.

Descriptive Results

Adversarial Buyer Seller Relationship Level

Table 4.1 Adversarial Buyer-Seller Relationship Level

Mean Std. Deviation
Our firm is at the initial stages of developing client relationship 2.48 .980
In our relation with clients, self-interest is most important 2.42 1.016
We attempt to squeeze every discount coin from our  clients 2.25 .869
We are determined to get the last drop from our client. 2.35 .919
Overall 2.3750 .85631

From the study, the respondents agreed to a small extent (Grand mean 2.3750 rounded off to 2) that adversarial buyer seller relationship level affects the performance of transport logistic firms in Mombasa County. This informs that the high cost of acquiring new client discourages adversarial relationship (Kumar, & Rahman, 2016).

Barometric Buyer Seller Relationship Level

Table 4.2 Barometric Buyer Seller Relationship Level

Mean Std. Deviation
We are keenly studying our clients 3.98 .724
We have not yet developed a high level of trust with our clients 4.00 .713
We are at the trust building stage with our major clients 4.04 .706
Our relation with our clients is generally at closely monitoring stage. 4.11 .715
Barometric relation, Overall Mean. 4.0335

From the study, on average, the respondents agreed to a great extent (Grand mean 4.0335 rounded off to 4) that barometric buyer seller relationship level affects the performance of transport logistic firms in Mombasa County. Closely monitoring clients to establish a reliable relationship leads to increased firm performance (Lysons, & Farrington, 2017).

Complementary Buyer Seller Relationship Level

Table 4.3 Complementary Buyer Seller Relationship Level

Mean Std. Deviation
We have developed a strong partnership with clients 3.50 .916
We have a commitment to honor our relation with our clients 3.60 .911
The relation is reliable 3.80 .767
We understand the needs of our clients and provide the needs 3.45 .915
Complementary Mean 3.5866

From the study, on average, the respondents agreed to a great extent (Grand mean 3.5866 rounded off to 4) that complementary buyer seller relationship level affects the performance of transport logistic firms in Mombasa County. In complementary buyer seller relationship level, real integral partnering can occur that implies mutual, benefit. In fact, complementary relationship level may take longer to develop than anticipated, but the close relationship delivers value (Mohanty & Gahan, 2015).

Negotiation

Table 4.4 Negotiation and Buyer Seller Relationship Level

Mean Std. Deviation
Our negotiation has been the able to solve conflicts 3.90 .640
We have an effective negotiation relation with our clients 3.80 .705
We have an effective negotiation culture 4.04 .660
We gain significant advantage based on our negotiation skills 3.64 .773
Negotiations Mean 3.8425

From the study, on average, the respondents agreed to a great extent (Grand mean 3.8425 rounded off to 4) that complementary buyer seller relationship level affects the performance of transport logistic firms in Mombasa County. Negotiation is a tool for conflict resolution and indeed is geared towards reaching a compromise between parties who have conflicting interests (Rogers, & Fells, 2018).

Performance of Transport Logistic Firms

Table 4.5 Performance of Logistic Firms

Mean Std. Deviation
Increased Profitability 3.80 .767
Increased revenues 3.67 .797
Increased number of customers 3.70 .727
Increased Productivity 3.85 .827
Performance overall 3.76 .647

From the study, the overall performance of the transport logistic firms was realized through increased productivity (mean=3.85, SD=.827) and increased profitability (3.80, SD=.767) as the highest contributors.  On the other side, increased revenues (mean=3.76, SD=797) contributed least to the overall performance of the transport logistic firms.  Organizational performance is key to firm sustainability and success. Firms that register high performance rates are more likely to be ongoing concerns and survive in the long run (Coad, 2009).

Correlation Analysis Results

Table 4.6 Correlation Analysis Results

Adversarial Barometric Complementary Negotiation Perfo
Adver Correlation 1
p
Barom Correlation .283** 1
p .001
Compl Correlation .407** .411** 1
p .000 .000
Nego Correlation .331** .441** .406** 1  
p .000 .000 .000  
Perf Correlation .285** .452** .439** .609** 1
.001 .000 .000 .000  

Collectively, the correlation result as shown that buyer seller relationship and negotiation are moderately correlated and the correlation is positive. The relation between the independent variable and the dependent variable are all significant. This implies that an improvement of the buyer seller relationship and negotiation increases firm performance.

Table 4.7 Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate Change Statistics
R Square Change F Change df1 df2 Sig. F Change
1 .557a .310 .288 .55294 .310 13.928 3 93 .000
2 .679b .462 .438 .49113 .151 25.883 1 92 .000
3 .719c .516 .478 .47326 .055 3.359 3 89 .022

Whereas model 1 test the direct effect of the main independent variables, Model 2 with a moderator introduced has a significant R square change; ΔR2 = 0.151, ΔF(1,92) = 25.883, p<0.001 and indication of the central role of negotiation on performance of logistic firms which operate in a competitive environment and dwindling markets. This results shows that negotiation competencies and skills boost performance of logistic firms by 15.1% above the contribution by the three measures of buyer-seller relations. In moderation analysis, model 2, with potential moderator as a predictor, is the baseline model in testing moderation effect. It is the point of reference in the change from model without interaction and model with interaction (model 3). In model 3, the interaction coefficient of interaction terms presented for assessing moderation are the focus in testing moderation hypotheses.

Table 4.8 Moderated Multiple Linear Regression Analysis; Coefficients

Model Coefficients T Sig.
Beta
1 (Constant) .000 .000 1.000
ZADVE .284 2.994 .0033
ZBARO .316 3.745 .000
ZCOMP .275 3.103 .002
2 (Constant) .000 1.000
ZADVE .013 .170 .866
ZBARO .175 2.215 .029
ZCOMP .176 2.181 .031
ZNEGOT .456 5.715 .000
3 (Constant) .413 .680
ZADVE .153 1.018 .311
ZBARO .353 1.799 .075
ZCOMP .136 .805 .423
ZNEGOT .463 5.902 .000
ZADVE*ZNEGO .564 2.916 .004
ZBARO*ZNEGO .285 3.323 .001
ZCOM*ZNEGO .159 1.99 0.049

The hypothesis, H04 postulated that negotiation has no significant moderating effect on the relation between adversarial practices and performance. The coefficient of the interaction term (ADVERS*NEGO) is significant, an indication that negotiation has a significant moderation effect (β=0.564, p=0.004). The hypothesis H04 is thus rejected in favor of its alternative, the research hypothesis H4.

Again the hypothesis H05 claimed that negotiation has no significant moderating effect on the barometric-performance relationship. The significant coefficient of the interaction term, ZBARO*ZNEGO (β=0.285, p=0.001) is significant. Thus the hypothesis H05 is rejected in favor of its alternative, H5.

And, finally, the hypothesis H06 claimed that the complimentary -performance relation is not significantly moderated by negotiations. The results in model3 showed that the coefficient of the interaction term (complimentary*negotiation) is significant, β=0.564, p=0.004) an indication of significant moderation effect of negotiation. The hypothesis H06 is thus rejected in favor of H6.

The derived models are as follows.

Y1= .000 + .284ADV + .316BRM + .275COM

Y2= .013ADV + .175BRM + .176COMP + .456NEGO

Y3= .153ADV + .353BRM + .136COMP + .463NEGO + .564ADNEGO + .285BARMNEO + .159COMPNEGO

CONCLUSIONS

Based on the study findings, the following conclusions were made;

  1. Adversarial Buyer seller relationship level has a positive and significant effect on performance of transport logistic firms, which is strengthened by negotiation.
  2. Barometric buyer seller relationship level has a positive and significant effect on performance of transport logistics firms. This relationship is strengthened by good negotiation.
  3. Complementary buyer seller relationship level has a positive and significant effect on performance of transport logistics firms. This relationship is further strengthened by good negotiation.
  4. Negotiation positively and significantly influence buyer seller relationship level and performance of transport logistics firm.

MANAGERIAL RECOMMENDATIONS

Based on the conclusions of the study, the following recommendations were derived;

  1. Transport logistics firms should work towards strengthening adversarial buyer seller relationship level in ways that manage costs well as it increases firm performance.
  2. Transport logistics firms should work towards strengthening barometric buyer seller relationship level in ways that build trust as it increases firm performance.
  3. The logistic logistics firms should work towards strengthening complementary buyer seller relationship through commitment and collaboration as it increases firm performance
  4. Transport logistics firms should train their staff on negotiation as it moderates the buyer seller relationship thus expect better performance

POLICY RECOMMENDATIONS

  1. The government, in collaboration with transport logistic stakeholders should enact polices that support the sector especially on taxes and licenses that increase unnecessarily the cost of doing business.
  2. Stakeholders should invest in negotiation training is important as it gives the communication and persuasion skill to employees which helps the transport logistic firms get the best bargains.

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