Farmer-buyer relationships in China: the effects of contracts, trust and market environment

Purpose – The purpose of this paper is first, to develop constructs to measure three important concepts in the supply chain literature: contracts, trust and market environment, in the Chinese context and to further investigate the relationships amongst these three concepts based on the formulated hypothesis. Design/methodology/approach – The research methodology has strictly followed the recommended scale development procedures, which include specifying each constructs, item generation, data collection, reliability and validity test, and finally test hypothesis. The primary data were collected in October 2008 in Hubei Province, China. Both exploratory factor analysis and confirmatory factor analysis are applied to assess the reliability and validity of the three constructs. Findings – In total, 22 items were retained to measure six dimensions for the three core concepts: contract (marketing and production), trust (reliability and benevolence), and market environments (diversity and volatility). Second, the finding supported this argument that contracts and trust functions as complements. Furthermore, a positive relationship between environmental uncertainty and the use of contractual governance was found. Research limitations/implications – The measurement model for environmental volatility is less satisfied. More research should be carried out on the measurement of market environment in the future. Originality/value – This paper identifies and validates key constructs underlying supply chain management research: contract, trust and market environment, in a Chinese context. These measurable concepts could be applied in similar settings to further investigate small-scale farmer's position along the supply chain.