Owing to the risk of seasonal and short product life, small firms are naturally inclined to
reduce inventory carrying costs and maximize profits from the products provided by the
suppliers. Many companies have perceived the importance of substituting information
for inventory as a potentially powerful source of competitive advantage (Spekman et al.
1999). Therefore, effective communication plays a critical role in social and business
relationships.
Anderson and Narus (1990) define communication as “the formal as well as informal
sharing of meaningful and timely information between firms.” Cannon and Perreault
(1999) suggest more open sharing of information is indicated by the willingness of both
parties to share important information. However, lack of trust can be translated to
unwillingness to share information (Fawcett and Marnan 2001), and can make it difficult
to share sensitive information such as financial data, especially in Asian business
(MOEA 1999). Therefore, Mavondo and Rodrigo (2001) bring up the issue of difficulties
in cross-cultural communication and information sharing as they can be a significant
obstacle to business.
Effective communication in channel relationships can enhance levels of channel member
coordination, satisfaction, commitment levels, and performance (Goodman and Dion
2001; Mohr and Nevin 1990). In fashion apparel industry, frequent communication
between retailers and suppliers can expedite quick and accurate response to volatile
market, and reduce the costs and impact of inaccurate forecasts (Fisher et al. 1994). With
the presence of trust and support, channel members are more willing to pass information
upward and promote bidirectional communication (Blair et al. 1985). Consequently, it
will help better match supply with demand and increase profitability for channel
members. On the other hand, under unequal power relationship a less powerful channel
party has a tendency not to provide information and feedback to more powerful ones
(Blair et al. 1985). Thus, the restricted information flow will impede the channel
relationships and affect the supply chain performance as well. Effective
communication is crucial to maintain a long-term buyer-relationship and achieve high
performance (Mohr and Nevin 1990; Morgan and Hunt 1994). Thus, we hypothesize
that