Essay: Opportunism

In relation to opportunism, there are two main schools of thoughts, namely Transaction Cost Analysis theory (TCA) (Williamson, 1985: 47) and Social Exchange Theory (SET). TCA aims at the conceptualization of opportunism in the context of relational terms whereas SET conceptualizes opportunism in relation to relational dimensions (Rokkan, Heide and Wathne, 2003; Morgan and Hunt, 1994). In particular, TCA is concerned about the possibility of emergence of transaction costs and this drives the emergence of opportunistic behaviour (Williamson, 1985: 40). In other words, to avoid the transaction costs, the partners tend to start behaving in an opportunistic way. In terms of SET, the main focus is placed on the strength of the dependency of the partner that might be used to the advantage of opportunistic behaviour (Ybarra and Wiersema, 1999). This theory may be applicable to the case of Tesco PLC, where the supplier companies demonstrated large degree of dependence of the grocery-retailing giant (The Guardian, 2015). However, on the other hand, SET emphasizes the value and role of trust in the relationship (Ybarra and Wiersema, 1999). As a result, this theory is more focused on the investigation of the affective elements of B2B relationships (Ybarra and Wiersema, 1999). The same source has also estimated that trust is positively interrelated with the strategic flexibility in the context of possible modifications being applied to the terms of the relationships and possible exit (Ybarra and Wiersema, 1999).
The majority of Upon establishment of trust within the relationships, the partners will be willing to integrate more resources and time in order to maintain effective relationships. As a result, they will be interested in demonstration of integrity and credibility as the key elements of trustful relationships to receive mutual benefits from these relationships (Leonidou, Talias and Leonidou 2008).
It is important to apprehend that within the opportunism leads to the negative outcomes that will emerge either way, trustful relationships provide more benefits and bring value in the long run (Chung 2012). In fact, the majority of studies have found out that opportunistic behaviour leads to the decrease of trust in the context of credibility and integrity (Chung 2012).
The start of the relationships between the companies is driven by the development of contract. Complete contract show all the obligations of parties, terms and conditions that have to be fulfilled. Contract is a confirmation that all the terms and conditions will be fulfilled thus being a replicate for trust. However, in reality, the situation is not as perfect (Mosey 2009). This implies that the contract might contain certain opportunistic terms that later would work to one partner’s advantage. Which can de linked to the imperfect language, certain imprecisions being integrated within the terms and limited foresights can impact and create asymmetry with the supplier (Mosey 2009).
The fear of opportunistic behaviour might induce the partners not to rely on one another. This might negatively affect the efficiency of the partnership. As a result, this relates to the imperfect commitment (Mosey 2009). In this case, incomplete contracting theory suggests the problems with verifiability and therefore need for further reinforced discussion. In the context of transaction cost theory, it has been estimated that it would be more logical for businesses to protect themselves within contractual framework (Mosey, 2009: 185). This is especially related to the uncertain environmental conditions and asset specificity. However, this opportunity is limited due to the bounded rationality and uncertainty (Williamson, 1985).
One of the most popular examples of opportunistic behaviour relates to renewable energy industry (The business green, 2012). Since few years now a majority of companies, including the oil companies have fallen for the effective and attractive public relation campaigns that have emphasized the benefits of the renewable technology.
Upon the procurement of renewable technology, the businesses have come to realize that there are some hidden costs associated with management of renewable technology (The business Green, 2012). It can be sometimes observed that after the procurement of renewable technology, the businesses were forced to manage the maintenance costs, hydrocarbon back up, intermittent and unreliable source of generation (like for wind energy) and the issue where the company is not able to store the product that may not be utilized when it is needed to be.
This example shows us that lack of information on the subject of the product, service and further after-service maintenance and consequences have become a result for opportunistic behaviour demonstration as perceive by deceived parties. As a result, the majority of companies tend to fear the emergence of opportunistic behaviour.
In this case, it is important to define fear to provide a more detailed perspective on the fear of opportunism. It has been estimated that fear has recently transformed into the obligatory requirement of any relationship or trade (Hjorth and Steyaert, 2009: 28). In other words, ‘insecurity about one’s place during periodic innovation, fear of losing recently gained privileges, and anxiety of being left behind, translate into flexibility, adaptability and a readiness to reconfigure oneself’ (Hjorth and Steyaert, 2009: 28). As it has been estimated earlier, the majority of untruthful partners will utilize any gaps in the contractual terms in order to integrate opportunistic behaviour. However, it has been projected that the emergence of opportunistic behaviour aligned with the possible gaps in the contract actually might make the parties apprehend that the contractual terms are not ideal (Mosey, 2009: 185). Therefore, it is important to review those carefully thus being able to reduce the risk of emergence of opportunistic behaviour. It has been further estimated that the risk of opportunistic behaviour is much larger if the partners are bound to negotiation (Lyons, 1996). Similarly, it is important to note that the risk of misleading behaviour is also larger if there is an uneven balance of power between the partners (Williamson, 1985: 40). For instance, the integration of larger decision-making power to one of the partners as a result of larger investments, being made, suggests that the other party is dependent on this partner (Poppo & Zenger, 2002). In this case, it is important to develop preconstruction phase agreement that would outline all the possible risks, terms and conditions (Poppo & Zenger, 2002). This agreement offers an opportunity for the parties to develop the terms and conditions for the future complete contract that would decrease the risk of emergence of opportunistic behaviour (Poppo & Zenger, 2002). However, it is important to apprehend that preconstruction phase agreement has to be clear and binding in order to provide both parties with benefits (Mosey, 2009: 185). Likewise, it is important to develop systematic development plan in order to avoid the need for negotiation that might lead to the emergence of opportunism (Mosey, 2009: 185). Along with that, this type of contract might result in the development of commitment between the parties, due to the integration of reasonable rewards for the results of the activities that have been performed during preconstruction phase (Mosey, 2009: 185).
In general, one of the key risks during the contract development process is the increase in dependency (Woolthuis et al., 2005: 832). This implies that in case of negotiation, the company might have low bargaining power and this might lead to the increase of opportunities for manoeuvre, thus leading to opportunistic behaviour (Williamson, 1985: 40). Woolthuis (2005: 832) has stated that this conclusion has led him to assume that contract are regarded to be poor mechanisms in the context of one-sided dependence, which contracts need the most per se (Woolthuis et al., 2005: 832). As a result, in case of large dependence, the main company will not have the opportunities to utilize the contract and its terms to him/herself advantage (Woolthuis et al., 2005: 832).
In the context of the trust development, it has been estimated that trust might be antecedent and precedent of the contracts (Larson, 1992; Lane, 2002). This implies that trust may be perceived as critical to the development and maintenance of the negotiations on the sensitive subjects (Larson, 1992; Lane, 2002). Likewise, an increased level of trust contributes to the development of contractual completeness by the willingness to commit to the partner (Larson, 1992; Lane, 2002). On the other hand, lower level of trust also contributes to the development of a complete contract; however in this case the parties tend to seek legal protection of their rights through the contract since they lack trust in another partner (Larson, 1992; Lane, 2002). Gulatti and Singh, (1998) have estimated that the repetitive character of the partnerships leads to the emergence of the increased trust toward the partner. This implies that both parties have had a successful previous contractual relationship that has brought the benefits and rewards to both partners (Gulatti and Singh, 1998). As a result, during the next time, the partner will know what to expect from another party in the context of the contractual relationship (Gulatti and Singh, 1998). This implies that the behaviour of another party is regarded to be predictable and this increases the trust of one partner toward another partner. As a result, this might lead to the development of a more complete contract (Gulatti and Singh, 1998). On the other hand, previous experience with the same partner might also lead to the lack of contractual completeness. This might be the issue due to the presence of alternative ordering mechanisms (Parkhe, 1993).
It is also important to highlight the issues of contractual inclusiveness and contractual obligatoriness. Contractual inclusiveness relates to the degree all the relevant issues are included within the contract whereas contractual obligatoriness relates to the degree restrain that may be executed with the support of binding contractual force (Luo, 2007). As a result, wider contractual inclusiveness that covers all the issues contributes to the completeness of the contract and therefore reduces the risk of opportunism (Luo, 2007). On the other hand, both obligatoriness and inclusiveness are interrelated concepts. For instance, without contractual obligatoriness, contractual inclusiveness has no value and this leads to the emergence of opportunistic behaviour (Luo, 2007).
Another popular example of opportunism in the renewable sector relates to the introduction of RET innovation policy in the UK (IRENA, 2013). It has been estimated that this policy might lead to the opportunistic behaviour due to the limited number of resources available to fully integrate this policy into practice (IRENA, 2013).
Likewise, dynamically evolving practices, democratic elections and free markets contribute to the development of the general environmental uncertainty, which, in turn, further leads to the emergence of opportunistic behaviour (IRENA, 2013). The same applies to the start-ups, which can benefit from the opportunistic behaviour (Christensen, Wuebker and Wustenhagen, 2009). In this case, the start-ups present the business plan that looks quite attractive for investors (Christensen, Wuebker and Wustenhagen, 2009). This is followed by the investor willingness to invest into this start-up, whereas the entrepreneur take money and do nothing in the context of reaching the start-up strategic objectives (Christensen, Wuebker and Wustenhagen, 2009). CNBC, (2013) has reported that out of 33 US renewable start-ups that have received US Government supported loans, only 13 have survived and continued offering their products on the market (CNBS, 2013). This implies that almost half of the companies have left the industry. In part, the opportunistic behaviour might be a reason behind that, due to the sensitivity of the industry (CNBC, 2013). Likewise, it is quite easy to receive a government ‘ supported loan in the renewable energy sector, since there is a large motivation that drives this program, due to the increasing societal concern toward this issue (CNBC, 2013). As a result, the degree of opportunism in this sector might be perceived as high, given the market uncertainty and large need for innovations in this sector.

We have shown the impact of fear of opportunism on the procurement activity within B2B relationships. It has been demonstrated that opportunism is a common issue in B2B relationships due to the pressure of the market conditions.
Therefore, the majority of partners are aware of these issues and try to design the contracts in order to avoid a risk of opportunism emergence. It is often the case that opportunism emerges when one partner tends to manipulate another partner to his or her own advantage. This at the end leads to the development of inefficient operations within the supply chain management. Also, this negatively affects the trust levels between the partners.
Nevertheless, the majority of partners develop written contracts to protect themselves. But, the contracts might also lack guarantee in the context of fulfilment within the contractual terms and conditions. This is especially the case in the context of the need for negotiations. This implies that during the negotiations, one party is regarded to demonstrate more power thus leaving a room for manoeuvre, which might lead to the emergence of opportunism. Along with that, it is important to highlight the significance role of the contract combined with trust. There are a lot nuances that have to be taken into consideration upon the development of complete contracts thus being able to avoid the emergence of opportunism.

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