How To Improve Channel Relationship Performance Through Relation-Specific Investment?

Relation-specific investment (RSI) is a key construct in inter-firm relationship research, and a crucial determinant of the property of the inter-firm relationship. Prior research in channel of distribution emphasizes a lot on this topic. In marketing practices, distributors always require manufacturers to make RSI both tangible and intangible. In turn, distributors also constantly make RSI for manufacturers. Some transaction cost economists critize that the firm making specific investment might be exploited by its partner, which will harm the stability of the channel relationship. However, recent research has discovered that RSI can bring unnegligible value to the channel. That is, RSI can positively impact channel relationship performance through certain mediating mechanisms. This study attempts to uncover the mechanisms underlying the impact of relation-specific investment (RSI) on channel relationship performance.This research distinguishes between property-based RSI and knowledge-based RSI, which are argued to rely on different mediating paths to facilitate relationship performance. Specifically, property-based RSI stimulates formal contract, whereas knowledge-based RSI generates relational trust and relationship learning. However, relational trust exerts an adverse influence on the effectiveness of relationship learning. Results from an empirical study conducted in the context of China's marketing channel basically support the proposed model. Practically, this study suggests that in China's current marketing channels, channel members should prioritize knowledge-based RSI when making RSI into channels and pay special attention to relational trust cultivated by RSI.