Case study

Adoption of strategic networks: evidence from

the Hong Kong clothing industry
Mei-mei Lau and Karen Ka-leung Moon
Institute of Textiles and Clothing, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong

Abstract
Purpose – Recent management literature demonstrates a growing interest in strategic networking. The aim of this paper is to explore the adoption of
strategic networks using Hong Kong clothing industry as the context because the influence of Asian cultures is under-researched.
Design/methodology/approach – Three key research questions about asset specificity, years of relationship, and size of the supplier base were
developed from the literature. Qualitative data were collected from in-depth interviews with senior executives at five large clothing companies in Hong
Kong.
Findings – The qualitative findings confirm that the specific asset investment, reciprocal or one-way, has a positive impact on the development of
strategic networking; that enterprises strive hard to maintain longer relationships with key supplier members; and that a small supplier base is widely
adopted by the sample firms.
Practical implications – The implications for managerial practice are that strong strategic networking is needed as transaction-specific assets can
safeguard the network relationship; that a long-term relationship enables effective transactions; and that managing a small number of suppliers helps
to stabilize network relationships.
Originality/value – This paper represents an initial attempt to include Asian cultures in the study of strategic network concepts within one globalized
industry – the Hong Kong clothing industry. The paper also demonstrates to practicing managers how strategic networks made up of manufacturers
and their suppliers are adopted and maintained, and in turn, guides practicing managers on how to allocate resources appropriately to develop a
strategic network.

Keywords Strategic groups, Assets, Buyer-seller relationships, Suppliers, Garment industry, Hong Kong

Paper type Case study

An executive summary for managers can be found at
the end of this article.
Introduction
Asian producers have a global influence on the textile and
clothing industries. For decades, countries in Asia, especially
the big four of Hong Kong, Japan, South Korea, and Taiwan,
have enhanced their production and marketing structures,
and influenced global markets (Dickerson, 1999). In Hong
Kong, the clothing manufacturing industry is the largest
exporter of all industries – its exports were valued at
HK$63.4 billion or 68.2 percent of domestic exports in 2004
(HKCSD, 2005). Indeed, Hong Kong is the third largest
supplier of garments and clothing accessories to the US
(accounting for 5.5 percent or US$4.1 billion of total imports
into the US); the largest supplier to China (accounting for
44.9 percent or US$693 million of total imports to China);
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Journal of Business & Industrial Marketing
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[DOI 10.1108/08858620810881610]
and the fifth largest supplier to the UK (accounting for 4.9
percent or US$982 million of total imports to the UK)
(COMTRADE, 2005). The industry provides products
ranging from accessories, basic casual wear, and sports
wear, to high-end fashion (Jin, 2004). Moreover, Hong Kong
is a global sourcing hub for clothing buyers from all over the
world. Clothing companies in Hong Kong are experienced in
various aspects of garment trade management, such as fabric
procurement, sales and marketing, quality control, logistical
arrangement, and clothing design. They are also
knowledgeable in dealing with international and national
trade rules and regulations. In fact, their acquired
professionalism as well as their combined services are
attractive to buyers all over the world, which are not easily
matched elsewhere (HKTDC, 2004).
However, in the past few decades, firms in the Hong Kong
clothing manufacturing industry have faced challenges in the
form of factory closures, employment reduction, lack of
government support, and the ensuing business performance.
Received: January 2006
Revised: July 2006
Accepted: July 2006
The authors would like to thank The Hong Kong Polytechnic University
for funding this study and Professor Chad Perry for his insightful
comments on the early versions of this article.

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 Adoption of strategic networks
Mei-mei Lau and Karen Ka-leung Moon
In order to deliver quality clothing products in a short lead
time, foreign importers and retailers require local clothing
suppliers to use supply chain management to ensure ordered
merchandise reaches the store floor at the right time
(HKTDC, 2004). Strategic networking is one way of
responding to such a demanding environment (Anderson
and Weitz, 1989; Chen and Paulraj, 2004; Limerick and
Cunnington, 1993).
Hong Kong is principally a Chinese society, so the business
networks are socially and culturally specific (Yeung, 1995). In
Chinese society, guanxi (personal relations) is cultivated
among Chinese firms. Guanxi is defined as a “particularized
and personalized relationship based on the reciprocal
exchange of favors” (Lee et al., 2001, p. 52). It refers to
personal connections and social relationships, and is a
prerequisite for most information and business exchanges in
China (Bjorkman and Kock, 1995). Guanxi is also an
essential procedure for establishing the intention of doing
business with strangers, and it takes time to establish (Lee and
Dawes, 2005). Chinese firms are more relationship-based and
long-term oriented than Western firms, which tend to be more
contractual-based and short-term oriented (Batonda and
Perry, 2003; Lee et al., 2001; Yeung, 1995). Indeed, long-
term orientation is predominant in East Asian countries like
Hong Kong, Taiwan, and Japan (Hofstede, 1994).
Nevertheless, existing network theories, which are mostly
based on situations in western countries, pay insufficient
attention to network collaborations within an Asian context.
The complexity of Asian contexts not only represents a
challenge to researchers, but also offers an opportunity for
improving both empirical understanding and theoretical
development of strategic networking (Doney and Cannon,
1997). Ignorance of Asian strategic embedded networks may
inhibit a complete understanding of firm behavior (Gulati
et al., 2000).
This paper aims to study the current situation of Hong
Kong clothing companies in regard to their establishment of
strategic networks with fabric suppliers. Its contribution to the
literature is the provision of a more in-depth picture of
strategic networking within the clothing industry in an Asian
context. The paper consists of five sections. First, we outline
the theoretical background to the adoption of strategic
networking. Then, we put forth three related research
questions. Subsequently, we adopt an in-depth interview
methodology to collect views from the industry. Next, we
discuss conclusive findings for each research question. Finally,
we provide a discussion on managerial implications.
Theoretical review and research questions
A strategic network is a collaboration of two or more
organizations in long-term, purposeful arrangements across
various business functions (Jarillo, 1993; Thorelli, 1986), in
which, parties engage in cooperative behaviors and
coordinating activities in such areas as production,
purchasing, research and development, and marketing and
distribution. In order to set up a network, firms should ensure
that it is economically viable; that is, it efficiently coordinates
the business system to develop and enhance strategic benefits
and goals, and to sustain competitive advantages (Fontenot
and Wilson, 1997). From the literature reviewed below, three
key constructs were found to be used to measure the adoption
intensity of a strategic network. They are asset specificity,
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years of network relationship, and the size of the supplier
base.
Asset specificity
Firms are required by the networked members to commit to
their relationships by investing substantial specific assets.
Assets are economic resources that are expected to produce
benefits in the future (Horngren et al., 2005). Williamson
(1991, p. 281) defines asset specificity as the “degree to which
an asset can be redeployed to alternative uses and by
alternative users without sacrifice of productive value.” In
other words, asset specificity concerns the degree of
transferability of the assets that support a given transaction
(Williamson, 1985; Young-Ybarra and Wiersema, 1999).
Transaction-specific investments create obstacles to
abandoning the relationship and provide incentives to make
long-term relationships work (Anderson and Weitz, 1992).
There are three types of asset specificity that can be linked
to a firm’s performance: site, physical, and human asset
specificity (Dyer, 1996a, b; Williamson, 1979, 1985). Site
asset specificity refers to the distance of facility between
partners. Successive production stages that are immobile in
nature are located in close proximity to the partners in order
to improve coordination and economize on inventory and
transportation expenses (Dyer, 1996b). Physical asset
specificity refers to specialized equipment that is needed to
produce a component (Williamson, 1991). It allows for
product differentiation and may improve quality by increasing
product fit (Dyer, 1996b). Human asset specificity focuses on
the degree of specificity of skills, knowledge, and experience
of a firm’s personnel in dealing with another firm in a vertical
relationship (Zaheer and Venkatraman, 1995). Human asset
specificity also refers to relation-specific know-how
accumulated between partners through a long-term
relationship (Dyer, 1996a). These three types of asset
specificity enhance the development of strategic networks.
Years of relationship
Years of relationship refers to the length of time for which
repeated transactions exist between two business partners
(Wu and Choi, 2004). Years of relationship is positively
related to continuity of relationship, trust and commitment
(Anderson and Weitz, 1989). Older and well-established
network relationships can exhibit considerable “inertia” or a
built-in tendency to continue. A long-term relationship can be
stabilized and achieved by a high degree of compatibility
through overtime adjustments, and elimination of
unsatisfactory and unalterable past behaviors (Anderson and
Weitz, 1989). This is because parties in older relationships
can predict one another’s reactions and coordinate activities
more efficiently, while at the same time, they require lower
levels of communication than would typically be required in
newer relationships. Indeed, when a relationship is
longstanding, it may survive a critical shakeout period of
conflict as trust has been built from experience (Anderson and
Weitz, 1989). Even without undergoing crises, partners come
to learn each other’s idiosyncrasies and deepen mutual
understanding over time (Williamson, 1985). In addition,
repeated transactions probably create more opportunities to
correct transaction inequities in future exchanges, thus
reducing bargaining costs. Therefore, transaction costs
decrease over a longer period of time because such non-
contractual, self-enforcing safeguard mechanisms can control
opportunism and protect transaction-specific investments
 Adoption of strategic networks
Mei-mei Lau and Karen Ka-leung Moon
effectively over an indefinite time horizon (Dyer, 1997).
Transaction costs can also be reduced because the costs of
sharing information go down, and ex ante and ex post
bargaining costs decrease as well (Dyer, 1997).
Size of supplier base
The third construct used to measure the adoption intensity of
a strategic network is the size of the supplier base. A firm is
often thought to benefit from increasing the number of
suppliers because it widens the range of choices. If alternative
suppliers are numerous and easily obtainable, the rejection of
a firm’s control may lead to the termination of its relationship
with the supplier, which will not incur a heavy penalty for the
firm (Bucklin, 1973). However, the number of suppliers is
restricted by organizational and technological considerations
such as the costs of setting up a relationship and search costs
(Bakos and Brynjolfsson, 1998). The transaction costs
associated with managing a large number of suppliers can
often outweigh the benefits (Chen and Paulraj, 2004). Thus,
reducing the number of suppliers with larger volume orders
and longer-term contracts is a contemporary purchasing
approach adopted in many industries (Hutt and Speh, 2003),
and this is a characteristic of strategic networks. For instance,
Luen Thai, one of the largest apparel manufacturing firms in
Hong Kong, concentrates only on four major fabric suppliers.
It develops few, but deep relationships, making trust an
important criteria between it and its suppliers (Kahn, 2004).
In brief, many successful firms focus on only a few major
suppliers.
Research questions
To excel against rivals and survive in a competitive arena,
firms have to deploy their strategic networking policy in order
to sustain long-term relationships with their suppliers; that is,
they need to increase transaction-specific investments on both
sides, increase the years of relationships with suppliers, and
reduce the size of supplier base. But, do these considerations
apply to clothing firms in Hong Kong that adopt an Asian, or
more specifically Chinese, business culture? Based on the
literature reviewed here, we set forth three research questions
to be investigated:
RQ1. What are the current practices that clothing companies
and their fabric suppliers in Hong Kong carry on in
order to make transactional investments in specific
assets?
RQ2. How many years on average are relationships
developed among clothing companies and their fabric
suppliers in Hong Kong?
RQ3. How many fabric suppliers should each clothing
manufacturing company have in order to maximize
its efficiency?
Methodology
We adopted a qualitative approach to study the adoption of
strategic networks among Hong Kong clothing manufacturing
companies with their fabric suppliers. Since we wanted to
examine events that are contemporary, that operate within
culturally thick context, and that have boundaries that are
uncertain and require multiple sources of data (Yin, 1994),
we chose the case research method over other qualitative
methodologies. We used in-depth face-to-face interviews with
target respondents to collect data in the form of loosely
structured, direct, and personal conversations. This approach
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is able to uncover underlying beliefs, attitudes, and insights in
regards to a research topic (Malhotra, 2002), as well as to
provide opportunities to probe beyond the initial responses,
resolve ambiguities, and overcome unwillingness to answer
particular questions (Yin, 1994).
Five large, diverse companies were selected according to the
principles of literal and theoretical replication (Yin, 1994).
These five cases were within the recommended sample size
range of four to fifteen (Carson et al., 2001; Eisenhardt, 1989;
Perry, 1998). All these firms had well-established supplier
networks in the clothing industry in Hong Kong (Eisenhardt,
1989). Each of them had developed a professional network
management team to better manage the network operations
with their suppliers. Their core businesses were
manufacturing, design and product development, sourcing
and export trading; and all were wholly Hong Kong-owned
companies. They had been established for between 19 and 98
years and had annual sales turnovers ranging between
US$100 million and US$5.5 billion in 2002/2003. Their
major markets were the US, Europe, China, Japan, and
Australia. Detailed profiles of the responding companies are
shown in Table I.
E-mails requesting interviews were sent to the top
executives of these companies and follow-up phone calls
were placed. In the interviews, the interviewer followed a set
of well-developed, broad questions in an open-ended way.
Reliability was achieved by using an interview protocol that
outlined the standard questions for each case. Yet, these
questions were not asked in a fixed order but inserted into the
“conversation” during the interviews (Carson et al., 2001). In
this way, the interviewees could give their own opinions and
insights into the predetermined issues more freely. Each
interview lasted approximately two hours. With the
participants’ permission, the interviews were tape-recorded
for later transcription. After the interviews, clarifications were
made by follow-up phone calls whenever necessary.
All the interviewees were senior staff at their respective
companies. Each of them had over five years of direct
involvement in managerial roles either in merchandising, sales
and marketing, or corporate development. They had vast
experience of managing network relationships with their
suppliers. Indeed, their professional and industrial knowledge
provided many insights for this study and ensured the
reliability of the data collected. The validity of this study was
also achieved by using multiple sources of evidence (Yin,
1994); the data collection methods ranged from the face-to-
face in-depth interviews noted above, to reviewing records
from the Internet, magazines, newspapers, and annual reports
of the companies.
Data analysis
After the interviews, the data were analyzed using the content
analysis technique (Carson et al., 2001), which is defined as
“the objective, systematic, and quantitative description of the
manifest content of a communication” (Malhotra, 2002,
p. 189). Content analysis is based on the theory that repeating
certain elements of discourse (words, expressions or similar
meanings) reveals the research context (Thietart, 2001) rather
than observation-based field notes (Patton, 2002). In
addition, quotations from the interviews were used to
provide support to the data interpretation and to justify
conclusions drawn from comparing the differences among
cases (Perry, 1998). The following section presents a
 Adoption of strategic networks Journal of Business & Industrial Marketing
Mei-mei Lau and Karen Ka-leung Moon Volume 23 · Number 5 · 2008 · 342 –349

Table I Company profiles

Company profiles Company A Company B Company C Company D Company E
Years of 19 years 98 years 28 years 57 years 39 years
establishment
Business nature Trading, design and Trading, retailing, and Garment Garment Design and
product development, distribution manufacturing manufacturing development, garment
sourcing and agency manufacturing, logistics
service and IT services
Annual sales US$100 million US$5.5 billion US$193 million US$595 million US$500 million
turnover in 2002/
2003
Total employees 170 6,000 20,000 22,000 20,400
Major markets US, Europe, China, US, Europe, others US, Europe, Japan US, Europe, Asian US, Europe, Japan,
Australia countries others
Job title of Merchandising Investor relations Deputy general Senior manager Vice president
interviewees manager manager manager
Years of employment 11 years 5 years 8 years Over 10 years 5 years
in the company

summary of the data patterns for each of the three research
questions, in which the constructs of asset specificity, years of
network relationship, and size of supplier base are used to
measure the intensity of strategic network adoption by the five
sample companies.
RQ1. Investments in specific assets
Asset specificity is defined as the extent of redeployment of
investments in alternative uses and by alternative users
without deteriorating their productive value (Williamson,
1991). In this section, we report the transaction-specific
investments by the interviewed companies as well as by their
fabric suppliers.
Suppliers’ transaction-specific investments in the interviewed
companies
First, most of the interviewed companies reported that their
fabric suppliers had invested in tailored production systems to
meet their specific requirements. For example, some of the
suppliers invested in setting up formaldehyde-free production
conditions specifically for the infant orders of the Japanese
market, or setting up testing laboratories to perform fabric
testing in order to meet global standards. Second, some
interviewees stated that their suppliers made significant
investments in highly specialized machines dedicated to
their business, including a wrinkle-free oven, needle detectors
for children’s orders, and machines needed in an R&D and
inspection laboratory. Third, all interviewees reported that
their suppliers provided full-package services to them. For
example, their suppliers regularly informed them of newly
developed fabrics, so that they could present the new fabrics
to their buyers early on. Some fabric suppliers even provided
assistance and suggestions on how to make garments with the
special fabrics provided, allowing the buying companies to
perform better. Fourth, the interviewed companies said that
most of their suppliers had implemented electronic data
interchange (EDI) for the mutual benefits of communication.
These suppliers also established systems or used networking
tools, such as computerized bar codes, electronic purchase
orders and packing lists, to more efficiently process their
purchasing orders. All these data technologies helped to
simplify work procedures, save resources involved in data
input, and increase productivity. Indeed, some suppliers, with
the help of the interviewing firms, even developed electronic
payment systems to facilitate payment processes. However,
none of the interviewed companies mentioned that their
suppliers had relocated a factory close to their plants or
offices. This was probably because of the locational factor –
in the words of one interviewee (company E):
[. . .] a fabric mill was already a large investment and needed to be put in
place with suitable geographical features, such as adequate water supply,
contemporary infrastructure, and qualified workers. Because of all that, it
was very difficult for a fabric supplier to relocate their factories.
In sum, the fabric suppliers were rather willing to invest in
physical as well as human assets for their client firms, but not
in site assets owing to operational difficulties and locational
constraints.
Interviewed companies’ transaction-specific investments in their
suppliers
In contrast, the interviewed companies’ transaction-specific
investments in their suppliers were limited. Respondents from
companies A, B, and E claimed that they made no
transaction-specific investments in their fabric suppliers at
all. To minimize their investments in or expenditures on
suppliers, they searched only for those suppliers with specific
capabilities or techniques, rather than investing in specific
assets dedicated to those non-qualified suppliers. The
merchandising manager of company A said that:
[. . .] Conflict of profits would be high if manufacturers and suppliers worked
together, so we made no specific investments in our suppliers.
This view was also shared by the respondents from
Companies B and E. Nonetheless, the deputy general
manager of Company C noted that they had made some
transaction-specific investments in their fabric suppliers:
[. . .] My company makes specific investments to only a certain extent. We
invest in or lend money to our suppliers for purchasing special functional
machines.
The only firm which agreed that making transaction-asset
specific investments in suppliers could contribute to the
reduction of costs was company D. In the words of its senior
manager:

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 Adoption of strategic networks
Mei-mei Lau and Karen Ka-leung Moon
[. . .] My company has made transaction-specific investments in our
suppliers; for example, sending employees to train them to develop testing
laboratories or use a specific production system. Since fabric performing
tests in an outside laboratory is expensive, providing assistance and
employees to help suppliers in this area can lower costs in the long run.
In conclusion, some firms considered that transaction-specific
investments in suppliers reduced costs while others did not.
Companies A, B, and E did not invest in any specific assets in
their suppliers, while company C invested a small amount of
assets and company D was fully committed to investing in
their suppliers.
RQ2. Years of relationship
A long-term relationship between a manufacturer and a
supplier is expected to last more than five years (Walker,
1994). The durations of the relationships between the
interviewed companies in our study and their fabric
suppliers were all over four years. This is because fabric is
an essential material of garments so firms are more willing to
develop long-term relationships with their key fabric
suppliers. As a natural result of this, many of these
companies had established systems to track their fabric
suppliers’ performance and capabilities. The deputy general
manager of company C expressed that:
[. . .] The quality of yarn and fabric production is often difficult to predict.
Therefore, when we know that there may be problems in fabric production,
we hold meetings with our suppliers to discuss how to solve the problem and
give certain assistance to them. These discussions are repeated in every
season. After several years of monitoring our suppliers, we have developed a
formal system to monitor suppliers’ capabilities.
Indeed, long-term strategic networking with competent and
cooperative suppliers is crucial for a garment manufacturer to
be able to better handle customers’ requests, thus leading to
an improvement in the company’s overall performance.
RQ3. Size of supplier base
Most of the interviewed companies reported that they traded
with only a small number of fabric suppliers, ranging from
three to eight, all of which were reputable in the industry. On
the other hand, all of the interviewed companies were globally
renowned clothing firms, so they could easily develop long-
term relationships with these well-established fabric suppliers.
As the suppliers were large and could satisfy the large quantity
of orders issued by the interviewed companies, the size of the
companies’ supplier base could therefore be efficiently
reduced. In fact, all the interviewed companies, except
company A, which wanted to diversify its product types,
reported that the number of suppliers had not changed
significantly in the past three years. The proportion of
business that was carried out with each supplier was estimated
at an average of 25 to 35 percent. The vice president of
company E explained that:
[. . .] My company does business with only four major fabric suppliers. Very
often, we can obtain materials at a lower price from our suppliers because we
order materials in large quantities. However, we are still concerned about
their profit margins; therefore, we negotiate the material price together.
Finally, we develop interdependent relationships and achieve win-win
situations with our fabric suppliers.
He further explained that:
[. . .] The fashion market is unstable due to the different seasonal and fashion
demands for garment products. For instance, there are different trends every
season: shirts made with Lycra or t-shirts with stripes are highly fashionable
in the coming season. We have to cooperate with fabric suppliers so as to
adapt to many unpredictable trends in the market. This is the reason why we
chose the form of strategic networking instead of vertical integration.
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However, he also stated:
[. . .] The main cost of garments is fabric. It is crucial to keep a manageable
number of suppliers possessing different capabilities. Conducting a garment
business should be market-driven rather than supplier-driven. Our company
chooses to manufacture garments with fashionable fabrics that match the
market trend; therefore, we search for more efficient and cost-effective
suppliers. In the end, we aim at establishing an effective strategic network
with suppliers that have different abilities to produce different fabrics.
Other interviewees also asserted that they possessed a
“flexibility of suppliers” (company A), meaning that they
had developed network relationships with a large variety of
suppliers possessing different capabilities so that they could
quickly react to the unstable fashion market. As a general rule,
most clothing firms preferred to maintain a small supplier
base to ensure a stable material supply and enhance
purchasing efficiency. The only exceptions were those firms
intending to diversify their product range.
Discussion and implications for practice
In Chinese communities, long-term relationships are built
upon guanxi, which involves more interpersonal relationships.
In this study, guanxi was found to be prominent in the
relationships between the interviewed companies and their
fabric suppliers, which can be seen from their preferences for
long-term relationships, small supplier base and transaction-
specific investment, especially receiving inward investment
from their fabric suppliers. Indeed, a successful businessman
should be able to develop a good personal relationship with a
central decision maker. Then, he/she can get better
opportunities to win business deals that are controlled by
this decision maker through guanxi. In general, managers seek
to exploit all business opportunities in order to maximize
profits. Very often, they choose strategic networking with their
trading partners, as this is the least costly method, and more
importantly, competitive advantages can be gained (Chang,
2001; Chang and Harwood, 2001).
There are practical implications of the findings in this study
that could be valuable to decision makers. First, although
transaction-specific investments can create obstacles to
abandoning the relationship between manufacturer and
supplier and generate incentives to make long-term
relationships work (Anderson and Weitz, 1992), that is not
always the case. The interviewed companies and their
suppliers did not always make reciprocal specific asset
investments. Though all the fabric suppliers had invested in
specific assets in their client firms, only two interviewed
companies mentioned that they had invested in specific assets
in their networked suppliers. Apparently, a condition of
mutual lock-in is created as both parties commit (Wathne and
Heide, 2004). Nevertheless, transaction-specific investments
can create switching barriers due to the potential loss of an
investment if a relationship were to be terminated (Wathne
et al., 2001). Most of the interviewed companies preferred to
deal with their old networked suppliers instead of new ones
because of the suppliers’ commitment to making transaction-
specific investments (Jarillo, 1988). Obviously, specific asset
investments, both reciprocal and one way, are important in
developing and maintaining a successful strategic network.
Second, long-term relationships, all exceeding four years,
between the interviewed companies and their suppliers were
widely established. Human asset specificity could therefore be
increased as networked partners develop experience by
working and learning together, and sharing information
 Adoption of strategic networks
Mei-mei Lau and Karen Ka-leung Moon
(Dyer, 1996a). Essentially, trust can only be built after
partners successfully complete some initial business
transactions and develop a satisfactory experience of
collaboration. If partners have frequent successful exchange
experiences, they are more likely to bring high levels of trust
to subsequent transactions (Ring and Van de Ven, 1992).
Indeed, past successful experiences can reduce the time
needed to gather proprietary information as parties rely more
on each other and do not act opportunistically. Long-term
network relationships are therefore increasingly important
among manufacturers and suppliers, and have become a
crucial part of the organizational strategies of many firms.
Third, most of the responding firms purchased from only a
small number of networked suppliers. Having a large
percentage of business with a few suppliers can help to
build a long-term relationship. In fact, reducing the size of the
supplier base can help to equalize the bargaining power
between parties, and so trust can be more easily built (Carson
et al., 2003). Furthermore, restricting the number of suppliers
is the best way to ensure the benefits of non-contractible
supplier investments – those investments that are not
contractually specified in contracts, such as innovation,
responsiveness, and information sharing (Heide and Miner,
1992). In addition, networked members can gain advantages
in the form of economies of scale, flexibility, efficiency, and
low overheads, while at the same time, avoiding the
inefficiencies of bureaucratic control (Dyer, 1996a).
Moreover, one firm cannot perform all operations, so it is
more efficient to outsource to its networked trading members
(Burns and Bryant, 2002). Indeed, the need for equipment,
materials, and/or facilities varies from year to year. This is
especially true in the garment industry because fashion trends
are continuously changing and production lead-time is short.
Firms must increase their flexibility when choosing suppliers
and develop their competency to maintain a small and
manageable network with these suppliers. Hence, networked
members can achieve a higher level of performance by
working together efficiently (Anderson and Weitz, 1992).
Conclusion and future research
The five cases in this paper have provided a deeper
understanding of the actual practice of adopting a strategic
network among manufacturers in the Hong Kong clothing
industry. Our findings suggest that having an effective
strategic network with fabric suppliers is important for a
clothing manufacturer. First, transaction-specific investments
are needed to safeguard the relationships among networked
partners. Second, long-term relationships enable effective
business transactions and help to develop mutual trust. Lastly,
keeping a small number of suppliers helps to stabilize network
relationships.
The prominent trend of buyer-supplier collaborations has
been clearly recognized in a number of conceptual and
empirical studies in the field of management (Gulati et al.,
2000; Jarillo, 1988; Macneil, 1981; Ring and Van de Ven,
1992; Thorelli, 1986; Van Alstyne, 1997; Williamson, 1991).
Theoretically, this exploratory study has taken on a
pioneering role by exploring the intensity of strategic
network adoption among Hong Kong clothing
manufacturers, thus providing a foundation from which to
characterize strategic networks in a non-Western context.
However, in order to investigate the whole picture of strategic
networks, more studies should be conducted that explore the
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Volume 23 · Number 5 · 2008 · 342 –349
antecedents of a successful strategic network, the competitive
advantages that can be generated, and the cultural factors that
affect the network relationships.
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Corresponding author
Karen Ka-leung Moon can be contacted at: tcmoonk@
inet.polyu.edu.hk
 Adoption of strategic networks
Mei-mei Lau and Karen Ka-leung Moon
Executive summary and implications for
managers and executives
This summary has been provided to allow managers and executives
a rapid appreciation of the content of the article. Those with a
particular interest in the topic covered may then read the article in
toto to take advantage of the more comprehensive description of the
research undertaken and its results to get the full benefit of the
material present.
Adoption of strategic networks
Hong Kong is a global sourcing hub for clothing buyers from
all over the world. However, during the past few decades, the
clothing firms have faced challenges that require them to
deliver quality clothing products in a shorter lead time and at
a lower price. Strategic networking is one way of responding
to such a demanding environment. In this study, Lau and
Moon examine the current situation of Hong Kong clothing
companies with regard to the adoption of strategic networks
with their fabric suppliers. The authors used three constructs
to measure the adoption intensity of a strategic network,
including asset specificity, years of network relationship, and
size of supplier base:
.
Asset specificity. Firms are required by their networked
members to commit to their relationships by investing
substantial and specific assets. Asset specificity is defined
as the extent of redeployment of investments through
alternative uses, and by alternative users, without
sacrificing productive value. Hence, the transaction-
specific investments create obstacles that prevent the
networked members from abandoning the relationship
and provide them with incentives to stabilize the
relationships in the longer term. The three types of asset
specificity that can be linked to the performance of a firm
are site, physical, and human asset specificity.
.
Years of relationship. This refers to the length of time for
which repeated transactions exist between two business
parties. A long-term relationship with a high degree of
compatibility can be achieved and stabilized through
adjustments overtime and improvement in transaction
inequities during future exchanges. Therefore, transaction
costs decrease gradually once a network relationship has
been established.
.
Size of supplier base. The number of suppliers used directly
relates to the scale of order and the length of contracts,
which in turn affects the transaction cost. With the
adoption of a larger supplier base, a firm will encounter
increased complexity due to the difficulties of managing a
large number of small-scale orders and short-term
contracts. Inevitably, this indicates an escalation of the
associated transaction cost. It is therefore a trend for many
firms to focus on only a few major suppliers.
The research findings
Using the case research method, five face-to-face interviews
were conducted. The authors found that: specific asset
investment, reciprocal or one-way, has a positive impact on
the development of strategic networks; enterprises strive hard
to maintain longer relationships with their key suppliers; and a
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349
Journal of Business & Industrial Marketing
Volume 23 · Number 5 · 2008 · 342 –349
smaller sized supplier base is widely adopted by the clothing
manufacturing firms in Hong Kong:
.
Investments in specific assets. Transaction-specific assets can
safeguard the network relationships. Yet, between the two
parties, fabric suppliers were more willing to invest in
physical as well as human assets for their client firms. The
only exceptional case was site assets owing to operational
difficulties and locational constraints. Contrarily, buying
firms were less willing to make transaction-specific
investments in their counter partners. This is because
the clothing firms preferred to search for suppliers with
specific capabilities rather than invest in assets dedicated
to those non-qualified. Still, one clothing firm insisted that
making transaction-specific investments in suppliers could
contribute to the reduction of total costs.
.
Long-term relationships. A long-term relationship enables
effective transactions. The duration of the network
relationships between responding firms and their fabric
suppliers was usually over four years so that the buying
firms could establish systems with which to track the
performance of their suppliers. In the clothing industry,
having long-term relationships with competent and
cooperative suppliers is crucial for a manufacturer in
order for it to better serve its customers and, in turn, to
improve its overall performance.
.
Small supplier base. Managing a smaller supplier base helps
the clothing firms to stabilize the network relationships
with suppliers. In this study, each responding firm traded
with three to eight reputable fabric suppliers. As those
suppliers were sizable enough, they could take large-scale
orders issued by the buying firms, efficiently reducing the
size of the supplier base. Indeed, many clothing firms
preferred to maintain a small supplier base to ensure a
stable material supply and enhance the efficiency of
procurement.
Managerial implications
There are practical implications of the findings that could be
valuable to decision makers. First, transaction-specific
investments, both reciprocal and one-way, are important in
developing and maintaining a successful strategic network.
Such investments create switching barriers due to the
potential losses if a relationship were to be terminated.
Second, when long-term relationships between clothing firms
and fabric suppliers are widely established, the investment in
human asset specificity can enhance the efficiency of
collaboration and thus reduce the time and effort needed to
gather proprietary information. Third, managing a small
number of suppliers with a large percentage of business can
help to equalize the bargaining power between parties. In this
way, networked members can gain advantages in the form of
economies of scale, flexibility, efficiency, and low overheads.
In today’s clothing industry, fashion trends are continuously
changing and the production lead time becomes shorter.
Clothing firms must, on one hand, increase their flexibility in
choosing suppliers and, on the other hand, maintain an
effective supplier network of a manageable size. Only through
efficiently working together with their networked fabric
suppliers can a firm achieve, or even excel, its desired
performance.