Contract Choices in Raw Material Procurement by Agribusiness Firms in Vietnam

Abstract

Cooperation among firms and suppliers through contract governance is not a new phenomenon in the world, but has developed in Vietnam within the last decade. This study sought to determine the factors affecting contract governance and relationship satisfaction for agricultural firms and raw material suppliers in Northern Vietnam. The Structure Equation Modeling (SEM) was used to uncover significant influences among contract governance, transaction-specific investments, and trust as well as the influence of these variables on relationship satisfaction. Data was collected from 50 agribusiness firms in four provinces in Northern Vietnam. The results of the study showed that contract governance is significantly and strongly influenced by vegetable product types, which strongly influences transaction-specific investments. Firm satisfaction is affected by trust, if stronger than contract choice, and trust itself is influenced by transaction-specific investments and contract governance. Our results also indicate interpersonal trust is the most important factor influencing relationship satisfaction in relationships between agribusiness firms and raw material suppliers.

JEL Classification: C21, C83, L14, L22, Q13