Exploitative Embeddedness: An Empirical Study on Interorganizational Relations in an Industrial District, by Şükrü Özen

Prof. Dr. Şükrü Özen (Ankara Yildirim Beyazit University)

Industrial districts are assumed to be inherently conducive to embedded relations between organizations that facilitate trust-building. But, there are examples of districts where power imbalances between retailers, manufacturers and suppliers are very high. Then, the questions are how mutual dependence and power imbalances between organizations in industrial districts influence their embedded relations, and in what conditions are they beneficial or detrimental to embedded relations. These are the main topics developed by Professor Şükrü Özen in his dissertation celebrated into the Research Practice Community from Business Applied Economics Institute of the University of the Basque Country.

Phd. Özen has studied empirically the inter-organizational relations between manufacturers and retailers in the Siteler Furniture Industrial District in Ankara, Turkey. Drawing on the findings, Özen and collegues developed a theoretical model suggesting that manufacturer’s size and retailer’s competitive strategy shape the impacts of power imbalance and mutual dependence on the embedded relations. Decreasing size of manufacturers increases their dependence on retailers, and consequently, leads them to build embedded ties with retailers that involve a risk of being exploited.

Differentiation strategy rather than low-cost strategy increases retailers’ dependence on manufacturers, and consequently leads them to build embedded ties with manufacturers that involve a risk of being exploited. The study implies that mutual dependence between organizations enhances embedded relations, but power imbalance does not necessarily hinder them. The less powerful party tries to build embedded relations at the expense of being exploited by the more powerful one. Thus, Embedded relations may entail exploitation particularly in industrial districts where power inequalities are high.

The managerial implication of the study presented is that if firms would like to build embedded relations immune to exploitation, they should consider the extent to which their organizational characteristics fit those potential partners. Findings suggest that the dyad most conducive to embedded relations is the one between small manufacturer and differentiated retailer, in which power is balanced and mutual dependence is high.

*Prof. Dr. Şükrü Özen works in Ankara Yildirim Beyazit University and has relevant papers in journals like European Management Review, Journal of Management Studies, Organization, Journal of Business Ethics, Organization Studies, Socio Economic Review, etc.