FACTORS AFFECTING THE COLLABORATION IN SUPPLY CHAIN OF MECHANICAL ENTERPRISES IN VIETNAM

International Journal of Managing Value and Supply Chains (IJMVSC) Vol. 6, No. 4, December 2015 DOI: 10.5121/ijmvsc.2015.6402 17 FACTORS AFFECTING THE COLLABORATION IN SUPPLY CHAIN OF MECHANICAL ENTERPRISES IN VIETNAM Luu Tien Dung Department of Business Administration – International Economics, Lac Hong University, No. 10 Huynh Van Nghe Street, Bien Hoa City, Dong Nai Province, Vietnam A BSTRACT In the context of international economic integration, enterprises need to participate in the global supply chain to take advantage of assets, talents and other capability. Base on the Structure Equation Model (SEM-PLS) using primary data collected from 205 mechanical enterprises in Vietnam, the research result shows that there are nine direct factors affecting the collaboration in supply chain including: (i) trust; (ii) power; (iii) maturity; (iv) frequency; (v) distance; (vi) culture; (vii) strategy; (viii) policy; (ix) commitment. Results of the research give strong evidences for policy makers and enterprises for management the supply chain collaboration in mechanical sector in particular and other sectors in general as well as its contribution to literature review of supply chain management. K EYWORDS Knowledge Management; Mechanical sector; Supply chain collaboration; Structure Equation Model (SEM-PLS); Vietnam 1. I NTRODUCTION Under strong pressure from the international economic integration, Vietnam mechanical enterprises have to locate, restructure the business activities towards improving competitiveness and value added base on the construction and consolidation of the supply chain will play a role as a key strategy. Supply chain is a wide network, consisting of many subjects and many complicated relationships including many independent business organizations Therefore, focusing on administratiion of the collaboration relationship in the chain had become one of the most important matter that both the researchers and executor pay attention to. A lot of science research has proved the influence of creating and maintaining the members’ relationship through collaboration in the chain affects its effect. Therefore, building collaboration relationship is necessary to improve the business efficiency in the supply chain. The process of free trade and international economic integration helps Vietnam to become one of the potential places to invest. Vietnam is actively joining AEC, TPP, FTA with the Customs Union of Russia-Belarus-Kazakhstan, EVFTA and others. This is the key for Vietnam enterprises to join in the global supply chain. Vietnam’s goal is to become a modern industry country by 2020, therefore accelerating the development of mechanical industry is an important task under the decision No. 186/2002/QĐ-TTg dated 26/12/2002 of the government which approved the development strategy of Vietnam mechanical industry to 2010, vision to 2020. However, according to VAMI, current mechanical industry is only meeting about 35-40% of the domestic demands. The solution for the development of mechanical industry becomes critical International Journal of Managing Value and Supply Chains (IJMVSC) Vol. 6, No. 4, December 2015 18 and challenging for Vietnam enterprises today. In order to have the sustainable development for mechanical industry, aside from boosting the association and connection of companies, the mechanical enterprises have to find a way to approach the world market by becoming a supply place in the global chain. Setting up a suitable supply chain is a vital matter of each enterprise and industry, however, the matter of identifying the entities within the supply chain and make the entities to cooperate more with each other is a must for a sustainable development of the enterprises. This article focuses on making clearance factors that affecting the supply chain collaboration of mechanical enterprises in Vietnam base on the Structure Equation Model (SEM-PLS) using data collected from 205 mechanical enterprises in the Southeast region, one of the leading area in industrial development, especially in mechanical industry in Vietnam that including Ho Chi Minh City, Dong Nai and Binh Duong province. The research includes four parts: section 2 states the literature review, section 3 explains the applied research methods and study hypotheses and section 4 presents the results and discussion. 2. L ITERATURE REVIEW 2.1. The basic problems of supply chain collaboration 2.1.1. Supply chain collaboration Supply chain collaboration (SCC) is increasingly important in organizations because of its contributions to success of supply chain management and organization competiveness in the global economy. In supply chain, partnerships allow members of the system to achieve the set out objectives and meet the expectations of the consumers in the end (Samaddar et al., 2006). In reality, the establishment of a perspective on partnerships is a strategic decision by the common goals. According to Joffre and Koenig (1992) the coordination of the process of product supply is the prerequisite to develop between the owner of the resources as well as the efforts of the relationship. Perspectives of cooperation in relation to exchange are one of the effective means to develop and control or reduce the competitiveness among the subject. Furthermore, the partnership provides members in the distributed system with efforts to achieve the firm objectives, improvement of efficiency in the relations and improve the ability to provide and serve the customers (Vereecke and Muylle, 2006; Whipple and Russell, 2007). Supply chain collaboration is widely studied from many different points of view sources and collaborative concepts began to be widespread in the areas of supply chain (SC) in the mid-1990s (Barratt, 2004). Collaboration is defined as a cooperation of two or more members base on working together to create a competitive advantage through information sharing, joint decision making, and sharing the benefits from greater profits by satisfying the customer needs than acting alone (Simatupang and Sridharan, 2002). Anderson and Narus (1996) explains that collaboration is one between independents but related companies to share their resources and their abilities to meet the needs of customers. Anthony (2000) defines the term collaboration is two or more companies share responsibility to exchange the spreading, management, implementation, and performance measurement information plans. Soosay (2008) concluded that the cooperation can be described as a reciprocal relationship type organization, in which participants agree with the investment of resources, along with achieving goals, sharing information, resources, rewards and responsibility as well as to make decisions and solve problems together. In briefly, SCC helps a business organization coordinating and operating efficiency including supply chain management, reducing costs and inventory, increasing the level of customers satisfaction (Holweg, 2005; Soosay, 2008; Suong, H.T.T, 2012; Whipple et al., 2007). International Journal of Managing Value and Supply Chains (IJMVSC) Vol. 6, No. 4, December 2015 19 2.1.2. Contents of supply chain collaboration Goteborg and Sweden (2007), Lambert (1998) concluded that the relationships in the supply chain are mostly active vertically or horizontally way. Vertically relationship covers all of the relationships within the enterprises, between components in difference classes. Horizontal relationship includes relationships within a same class. A vertical chain completely connects the first provider in many ways to the final customer. Vertical alignment occurs when a central factors increase influence role to the other factors in many different classes. Vertical alignment is always directed at both the relationship between the manufacturer and the first supplier and between the manufacturers with the final customer (Christopher, 2005). There are three forms to build supply chain collaborations including vertical collaboration, horizontal collaboration and multi-dimensional cooperation (Backstrand and Safsten, 2006; Christopther, 1998; Mentzer, 2001; Togar and Sridharan, 2005). 2.1.3. The level of supply chain collaboration According to Cohen and Roussen (2006), Jenny Backstrand (2007) the interaction in the supply chain including three main components or more, referred to as transaction activity, collaboration and links. Each level of interaction contains a continuum of the kind of relationship type, include the following forms: (i) The transaction is generally understood as the exchange or transfer of goods, services or financial to each other. A transaction relationship means the activity of exchanging discrete value, especially about price (Achrol, 1991). The commercial transactions that involved price negotiation when the relationship with suppliers is a rival relationship and the goal is to aim to increase the personal profit of a member in the chain; (ii) The cooperation form in general is like working together or cooperate with a partner to whom cannot connect immediately. In other word, cooperate is to act or work together or with other partner so that both can be beneficial. The types of collaborative relationships are rival cooperation or non-rival cooperation (Cox, 2001), partners (Webster, 1992; Mentzer and associates, 2000), and the cooperation between manufacturer and supplier (Cravens and Associates, 1996); (iii) Linking form is often viewed as the union of the two entities into one entity for a business progress between two actors, the affiliate relationship consists of vertical link (Webster, 1992), buy back and venture (Ellram, 1991), and full-ownership (Bengtsson et al., 1998) or merged (MacBeth and Ferguson, 1994). 2.2. Factors affecting supply chain collaboration A vast supply network has a lot of interwoven connections, contain various contradictions between the subjects comes from a range of different factors (Simatupang and Sridharan, 2002). When focused on analysis the relationship between the components within the supply chain, research has shown nine important factors affecting the supply chain collaboration, as are summarized in table 1: Table 1: Variables definition Variables Definition Authors Independent variables Trust A positive belief, attitude, or expectation of one party concerning the likelihood that the action or outcomes of another will be satisfactory (Andaleeb, 1992). This factor therefore affects positively on sullply chain collaboration. Backstrand (2007); CoveyLink Worldwide (2006); Crook et al., (2008); Douglas M. Lambert and Michael Knemeyer (2004); Fawcett International Journal of Managing Value and Supply Chains (IJMVSC) Vol. 6, No. 4, December 2015 20 et al., (2008); Fawcett et al., (2011); Forslund and Jonsson (2009); Fyneset et al., (2005); Kwon and Suh (2004); Nyaga et al., (2010); Simatupang et al., (2004); Suong, H.T.T (2012); Walter (2003); Zacharia et al. (2009); Power When designing a supply chain and cooperating with other companies, one has to consider the other actor’s size, impact, and status. If the other actor is larger in size, has greater impact, and higher status, it will have more power in that relation (CoveyLink Worldwide, 2006; Backstrand, 2007; Suong, H.T.T, 2012). With greater power comes the ability to force a weaker actor to make decisions that are merely favorable for the powerful actor. The effect of power in supply chains has in fact been pointed out by several authors. McDonald et al., (1999); Backstrand (2007); Joyce and Mattew (2002); Buttaney and Lawrence (1988); Suong, H.T.T (2012); Donald C. Mead (1995); Butaney and Lawrence (1988); Watson (2001); Cox et al., (2004) Maturity Increased supply chain interaction maturity leads to reduced uncertainty, and improved business performance and is the best route to follow to achieve competitive advantage. The characteristics of process maturity are predictability, capability, control, effectiveness, and efficiency Childerhouse et al., (2003); Backstrand (2007); Suong, H.T.T (2012) Frequency Frequency refers to how often a transaction occurs. More transactions suggests greater routinization of interaction and is hence, an implication/incitement to form a closer relationship to make sure that transactions run smoothly Ellarm (1991); Sahay (2003); Suong, H.T.T (2012); Cooper (1997) Distance Distance between the partners in the supply chain refer to the geographical distance, the culture distance and the organizational gap between partners through the supply chain Cooper (1997); Suong, H.T.T (2012) Culture Defined as a shared values and belief that can help to understand organizational functioning and provide behavioral norms.the collective programming of the mind which distinguishes the members of one group or category of people from another. Differences in organisational or social level, could create differences of opinion or conflicts of interest (Tan et al., 2006) Tan et al., (2006); Jin and Hong (2007); Suong, H.T.T (2012); Stephen M. Dent (2006) Strategy Collaborative planning refers to collaborations among trading partners to develop various plans such as production planning and scheduling, new product development, inventory replenishment, and promotions and Simatupang and Sridharan (2005, 2008); Simatupang et al., (2002); Suong, H.T.T (2012); Stephen M. Dent (2006); Manoj International Journal of Managing Value and Supply Chains (IJMVSC) Vol. 6, No. 4, December 2015 21 advertisement. Decision synchronization refers to the process by which supply chain partners orchestrate decisions in supply chain planning and operations that optimize the supply chain benefits (Manoj Hudnurkar et al., 2013). Hudnurkar et al., (2013). Policies Governmental intervention in business activities. Local governments exert more direct influences by implementing formal and informal policies related to economic activity Beth Jenkins et al., (2008); Suong, H.T.T (2012); Cai et al., (2010) Commitment Commitment refers to the willingness of trading partners to exert effort on behalf of the relationship and suggests a future orientation in which firms attempt to build a relationship that can be sustained in the face of unanticipated problems (Porter et al., 1974). Walter (2003); Fynes et al., (2005); Chen et al., (2011); Kwon and Suh (2004); Nyaga et al., (2010); Zacharia et al., (2009) Dependent variable Collaboration in supply chain of mechanical enterprises in Vietnam Source: Summarized by author (2015). 3. METHODOLOGY AND RESEARCH HYPOTHESES This research was done based on two methods: (1) qualitative research is conducted in order to construct, calibrate the components scale: the trust rate between the partners; The power of partner; The level of maturity of the relationship between partners; The frequency of transactions between partners; The distance between partners; The policy of the Government; Cultural cooperation, Partners cooperation strategy; Committed, (2) quantitative research aims to collect, analysis survey data, as well as testing the component scale, measuring the research theory model and the hypothesis. Preliminary research is built and calibrated the scales and adds the observation variables through qualitative and quantitative methods. Preliminary qualitative research is done through expert group discussions with mechanical enterprises by the sampling method. The content of the discussions revolves around the of issues related to the factors that influence customer loyalty; Give out the research model for the discussion group to comment about the factors that affect the supply chain collaboration; give out the draft scale built up by the author group and corrected by the discussion group. After the exchange of ideas, the discussion group agreed with the model proposed by the author group. The discussion group is also recommended to calibrate some of the name of the scale components, and proposed to amend, add some convenience observation variables in Dong Nai province. From that, the research group has agreed about the factors that affect the supply chain collaboration research model, include: (1) the degree of trust between partners; (2) the power of partner; (3) the degree of maturity in the relationship between the partners; (4) the frequency of transactions between partners; (5) the distance between partners; (6) the policy of the government; (7) collaborative culture; (8) collaboration strategy of partners; (9) commitment. The scale of the research model included 35 observation variables measured by Likert scale 5 points with 1completely disagree to 5 – completely agree. Preliminary quantitative research is done by a survey with 40 samples from the mechanical business. The results showed that the Cronbach’s Alpha coefficient has achieved 86.07%, showed that the scales have high reliability. The formal research is done by sending direct survey questionnaires, direct phone and email as a convenience method to the mechanical enterprises in Ho Chi Minh International Journal of Managing Value and Supply Chains (IJMVSC) Vol. 6, No. 4, December 2015 22 City, Dong Nai and Binh Duong Province is divided by type, category, and area to ensure the representative of research sample. The data after cleaning and the evaluate the normal distribution will be analyzed by SPSS and Smart PLS software to test the scale’s quality, the relevance of the model and test the research hypotheses about the relationship between the dependent and independent variables in the research model. Research assumptions including: H1: The degree of trust between partners affects positively on the collaboration in supply chain of mechanical enterprises in vietnam H2: The power of partners affects positively on the collaboration in supply chain of mechanical enterprises in vietnam H3: The degree of maturity in the relationship between the partners affects positively on the collaboration in supply chain of mechanical enterprises in vietnam H4: The frequency of transactions between partners affects positively on the collaboration in supply chain of mechanical enterprises in vietnam H5: The distance between partners affects positively on the collaboration in supply chain of mechanical enterprises in vietnam H6: The policy of the government affects positively on the collaboration in supply chain of mechanical enterprises in vietnam H7: The collaborative culture affects positively on the collaboration in supply chain of mechanical enterprises in vietnam H8: The collaboration strategy of partners affects positively on the collaboration in supply chain of mechanical enterprises in vietnam H9: The commitment affects positively on the collaboration in supply chain of mechanical enterprises in Vietnam 4. RESULTS AND DISCUSSION Datasets are cleaned after 205 samples which enough for the conditions of factor analysis to explore the structure and linear model (Bagozzi and Yi, 1988; Hair et al., 2010, 2011, 2013; Henseler, 2010; Henseler and Sarstedt, 2013; Hoyle, 1995; Jackson, 2001, 2003; Kline, 1998; Marcoulides and Saunder, 2006; Ringle et al., 2005). Characteristics of the sample are categorized into 4 groups which consisting of (i) the type of enterprises (ii) enterprise size, (iii) industries and (iv) national origin (table 2). Table 2: Characteristics of study sample Variables Attributes Enterprises by type Enterprises by size Enterprises by Industries Enterprises by national origin Enterprise with foreign capital = 61.97%; Domestic enterprise = 38.03%. Super small = 18.22%; small and medium = 70.56%; Large enterprise = 11.22% Engine manufacture, parts, assemble parts cluster = 47.1%; Repair = 34.68%; domestic appliance = 18.22% Vietnam = 36.03%; France = 5.37%; Japan =16%; Korea = 14.73%; Taiwan = 13.5%; China = 7%; Others = 7.37% International Journal of Managing Value and Supply Chains (IJMVSC) Vol. 6, No. 4, December 2015 23 Reliability The reliability and validity of indicators in the model are tested by system of criteria and is presented visually in table 3. Individual factor reliability was assessed by examining the loadings (>0.50) of respective factors on their respective latent constructs (Hulland, 1999). The composite factor reliability coefficients of the constructs ranged from 0.7401 to 0.9175, which met the standard of 0.70 as suggested by Fornell and Larcker (1981). Table 3: Summarizes the results of testing scale Latent variables Indicator Factor loadings Indicator reliability (Loadings 2 ) Composite reliability Average Variance Extracted Collaboration (Y) Col1 0.8119 0.6592 0.9175 0.6898 Col2 0.8276 0.6849 Col3 0.8298 0.6886 Col4 0.8478 0.7187 Col5 0.8354 0.6978 Commitment Com1 0.7759 0.6020 0.7401 0.5430 Com2 0.8512 0.7245 Com3 0.8230 0.6773 Culture Cul1 0.1908 0.0364 0.8884 0.7992 Cul2 0.8912 0.7942 Cul3 0.8936 0.7985 Frequency Fre1 0.7104 0.5046 0.8365 0.6323 Fre2 0.8858 0.7846 Fre3 0.7794 0.6074 Maturity Mat1 0.7616 0.5800 0.8424 0.5722 Mat2 0.7830 0.6131 Mat3 0.7565 0.5723 Mat4 0.7233 0.5231 Policy Pol1 0.7582 0.5748 0.7825 0.5521 Pol2 0.8185 0.6699 Pol3 0.6419 0.4120 Power Pow1 0.4075 0.1667 0.8170 0.5425 Pow2 0.7959 0.6334 Pow3 0.8567 0.7339 Pow4 0.7979 0.6366 Strategy Stra1 0.8186 0.6701 0.8917 0.7322 Stra2 0.8898 0.7917 Stra3 0.8588 0.7375 Trust Tru1 0.7666 0.5876 0.8867 0.6619 Tru2 0.8311 0.6907 Tru3 0.8144 0.6632 Tru4 0.8402 0.7059 Distance Dis1 0.7773 0.6041 0.8407 0.6382 Dis2 0.8560 0.7327 Dis3 0.7620 0.5806 International Journal of Managing Value and Supply Chains (IJMVSC) Vol. 6, No. 4, December 2015 24 Convergent Validity Fornell and Larcker (1981) suggested that convergent validity of scales is established in the condition of the variance extracted value exceeds 0.50. Results indicated that the variance extracted for ten variables ranged from 0.5425 to 0.7332. Discriminant Validity Discriminant validity was assessed by the test provided by Fornell and Larcker (1981) in which the pair-wise correlations between factors obtained were compared with the variance extracted estimates for the constructs making up each possible pair. The Discriminate validity is adequate when constructs have an AVE loading greater than 0.5 meaning that at least 50% of measurement variance was captured by the construct (Chin, 1998). In addition, discriminate validity is confirmed if the diagonal elements are significantly higher than the off-diagonal values in the corresponding rows and columns. The diagonal elements are the square root of the AVE score for each construct. These values are shown in Table 4. Table 4: Fornell-Larcker Criterion Analysis for Checking Discriminant Validity Hypothesis Testing The R 2 measures a construct’s percent variation that is explained by the model (Wixom and Watson, 2001). The coefficient of the determination, R 2 equal 0.839 for the Collaboration endogenous latent variable. This mean that the nine latent variables (1) the degree of trust between partners; (2) the power of partner; (3) the degree of maturity in the relationship between the partners; (4) the frequency of transactions between partners; (5) the distance between partners; (6) the policy of the government; (7) collaborative culture; (8) collaboration strategy of partners and (9) commitment) moderately explain 83.9% of the variance in Collaboration. Results of testing the hypotheses in the research model showed that compared with initial expectations all of nine relationships are acceptable. In the nine factors affecting the results supply chain collaboration, the impact of Strategy are strongest (β = 0.227), followed by Culture (β = 0.221), followed by Power (β = 0.189), Frequency (β = 0.146), Distance (β = 0.140), Commitment (β = 0.128), the impact of Policies and Maturity (β = 0.129) and is finally the impact of Trust (β = 0.078). The nine factors moderately strong predictor of Collaboration in supply chain of mechanical enterprises. The quality of the structural model for each endogenous block can be assessed by the Redundancy index (Chantelin et al., 2002). Because of the objective of PLS is to maximize variance explained International Journal of Managing Value and Supply Chains (IJMVSC) Vol. 6, No. 4, December 2015 25 rather than fit, therefore predictionoriented measures such as R 2 are used to evaluate PLS models (Chin, 1998). Chin (1998) recommended that a bootstrapping procedure using 1000 sub samples was performed to evaluate the statistical significance of each path coefficient. Table 5 shows hypothesized path coefficients along with their bootstrap values and T’ values. Table 5: Showing path coefficients along with their bootstrap values, T-Statistics In this study, 5000 times analyzed repeatly with Bootstrap method was conducted in order to test the stability of the estimates for parameters. The results show that the difference from the initial estimate method does not have a huge difference compared to the estimates by bootstrap methods. All the difference in the estimates is not significant statistically. So the model estimates of reliability are guaranteed for the verification of model assumptions in this research. Figure 2: Structural equation modelling The evaluation of PLS model is based on prediction-oriented measures that are nonparametric (Chin, 1998). The PLS structural model is mainly evaluated by Goodness-of-Fit (GoF) (Tenenhaus et al., 2005) and by using the Stone-Geiser Q-square test for predictive relevance (Stone, 1974; and Geiser, 1975). Goodness-of-Fit (GoF) was employed to judge the overall fit of the model, GoF, which is the geometric mean of the average communality and the average R 2 , represents an index for validating the PLS model generally, as looking for a compromise between the performance of the measurement and the structural model, respectively. This model gets the GoF index was 0.7422 (table 6).