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Ethical judgments in : a scenario analysis Byoung-Chun Ha and Hyunjeong Nam Department of , , School of , Sogang University, Seoul, Korea

Abstract Purpose – The purpose of this study is to empirically analyze managers’ ethical judgments in . It investigated the influence of those judgments on and in relationships with suppliers. Design/methodology/approach – A scenario-based method was applied to measure managers’ ethical judgments using a sample of 341 data sets collected via survey. Structural equation modeling was utilized to test the proposed hypotheses associating ethical judgments with trust and collaboration in supply chains. Findings – This study illustrates that managers’ ethical judgments in bidding/contracting, and management significantly increase trust, which in turn increases supply chain collaboration. Originality/ – The study extends our understanding of ethical judgments in the supply chain management context. Its findings on the causality among ethical judgment, trust and supply chain collaboration provide an effective approach to the management of supplier relationships. Keywords Scenario analysis, Supply chain management, Supply chain , Ethical judgments, Supply chain trust Paper type Research paper

1. Introduction available evidence linking ethical judgment and key SCM factors such as inter-organizational trust and collaboration. The past several years have witnessed increasing interest in Moreover, studies on supply chain ethics have focused on ethical supply chain management (SCM) issues relating to unethical behaviors or ethical codes at the organizational level business or social responsibilities/values (Drake (Becker et al., 2013; Fawcett et al., 2007; Ballou, 2007); little and Schlachter, 2007; Gold et al., 2010; Svensson and Bååth, research has been done on supply chain ethics at the individual 2008). In line with this development, many firms have level. As supply chain managers are boundary-spanners voluntarily established ethical codes and fostered ethical working at the point of contact with business partners, cultures for beneficial co-existence with business partners. their judgments, and intentions reflect, and also Meanwhile, governments have pursued various strategies and determine their ’, ethical or unethical behaviors. policies intended to identify and resolve conflicts among Accordingly, the dimensions of managers’ ethical judgments supply chain partners. However, unethical business practices and their impact on relationships with business partners, not still occur in many buyer-seller relationships, especially to mention organizational performance, need to be studied in between many large firms and small- and medium-sized terms of business strategies to determine the role of ethical enterprises (SMEs). Some firms nonetheless might not have judgment in SCM. been convinced that in supply chains affects Scenario analysis, a method of describing a respondent’s long-term relationships, and thus might not have made perception of, faith in and attitude to a scenario or situation sufficient efforts to establish business ethics as a (Barter and Renold, 1999) is helpful in the study of subjective Downloaded by Regenesys Management Pty Ltd At 12:11 22 September 2017 (PT) company-wide strategic practice. topics, such as ethics, morality and intentions, that are difficult Previous studies have made both academic and managerial for respondents to discuss (Barter and Renold, 1999). contributions to our enhanced understanding of ethics in Scenario analysis minimizes social desirability , generates SCM. For example, Halldórsson and Skjøtt-Larsen (2006), detailed answers through the specificity of the stimulus given Becker et al. (2013) and Hernández-Espallardo et al. (2010) to respondents, and inspires natural responses by providing suggest that ethical approaches to SCM create collaborative respondents with a comfortable atmosphere and helping them business environments among firms. Theoretical and to approach sensitive subjects from a third-person perspective empirical investigations of ethical judgment in the supply (Alexander and Becker, 1978; Barter and Renold, 1999; chain, however, are still rare. Specifically, there is little Wilks, 2004). This method has become firmly established in many disciplines as a data-collection instrument for clearly identifying personal judgments on moral dilemmas The current issue and full text archive of this journal is available on (Rungtusanatham et al., 2011). Certainly, scenario analysis Emerald Insight at: www.emeraldinsight.com/0885-8624.htm

This work was supported by the Sogang University Research Grant of 2012 (201210024.01). Journal of Business & Industrial Marketing 31/1 (2016) 59–69 Received 30 July 2014 © Emerald Group Publishing Limited [ISSN 0885-8624] Revised 17 November 2014 [DOI 10.1108/JBIM-07-2014-0148] Accepted 19 November 2014

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can be used as an effective instrument for measuring -making (Jones, 1991). In the SCM literature, ethical judgments in an ethical decision-making framework. decision-making has been discussed as a critical antecedent to Thus, this study purposed to empirically investigate the link performance enhancement. Wisner et al. (2012) explain that between managers’ ethical judgment and SCM using a ethical refers to purchasing from firms that protect scenario analysis to enable managers to appreciate the value of or consider the weak in society (including SMEs). They ethical initiatives for supply chain efficiency. The specific further suggest that sustainability in the supply chain is related objectives were (1) to develop appropriate scenarios involving to , and financial an ethical dilemma occurring in a relationship with suppliers, performance. Burt et al. (2010) emphasize ethical standards (2) to determine the effect of managers’ ethical judgments on for supplier selection and ethical decision-making, the suppliers’ trust and (3) to empirically analyze the impact of and responsibilities of purchasing managers, relationships trust on collaboration with suppliers. This study will broaden with suppliers, social values and sustainability in the research on ethics in SCM by extending the analysis of management of suppliers. Johnson et al. (2011) argue the managers’ ethical judgments to the supply chain, measuring importance of ethical behaviors and decision-making to their influence on the cognitive variables that affect trust, and the enhancement of trust in buyer-supplier relationships. suggesting new strategies for improving inter-organizational Dobler and Burt (1996) emphasize that firms should provide relationships. opportunities for managers and employees to learn corporate ethical standards and, thereby, be further encouraged to 2. Theoretical background and hypotheses accept ethical standards for their decision-making and 2.1 Ethical judgments, trust and collaboration in SCM behaviors. Although previous studies have suggested the Ethics have been considered as one of the regulatory importance of ethical decision-making in supply chains, mechanisms that can govern inter-organizational transactions detailed empirical studies on the process of ethical (Gundlach and Achrol, 1993; Macneil, 1983). While a stream decision-making remain scarce. of researchers argue that inter-organizational transactions are In seeking to understand ethical judgments with respect to regulated and controlled by legal , some other scholars the supply chain, we need to discuss some of the ethical emphasize personal bonds or social norms (Macauley, 1963; of supply chain managers. Reidenbach et al. Macneil, 1980). Unlike legal , social norms require (1991) claim that an individual makes ethical judgments based individuals to guide, or regulate proper and acceptable on several ethical perspectives including , relativism, behavior, and thereby to set limits within which individuals deontology, and egoism. Some scholars, can seek alternative means of achieving their goals (Macneil, similarly, argue that no single moral can clearly 1980, p. 38). Similarly, ethics serve to influence behavior explain why ethical evaluations are made, and that in fact, according to the rules of moral philosophy (Gundlach and individuals tend to make ethical judgments based on several Murphy, 1993). As the role of contract has become less ethical philosophies (Reidenbach and Robin, 1988). prominent, ethics has been suggested as an important Unethical behaviors occur in the supply chain when foundation for exchange development (Gundlach and overlook, due to relativism or utilitarianism, the Murphy, 1993). value of ethics. According to relativism, widely accepted Ethics between partner firms has been a critical issue in ethical rules do not exist; rather, behaviors that are practically SCM. Firms endeavor to balance the rights and duties on or culturally accepted are considered right when normative stakeholders including society, employees, , faith is the standard. Utilitarianism believes that morally investors and suppliers (Boone and Kurtz, 2010). However, correct behaviors comprise acts the utility of which is high establishing clear standards of judgment for balanced according to a cost-benefit analysis (McMahon and Harvey, decision-making in considering all stakeholders’ positions 2007; Reidenbach et al., 1991).Managers’ ethical judgments Downloaded by Regenesys Management Pty Ltd At 12:11 22 September 2017 (PT) is difficult (Boone and Kurtz, 2010). Supply chain are based on relativism, in the sense that unethical behaviors managers who are responsible for managing intra- and in the buyer-supplier relationship violate ethical standards that inter-organizational problems often end up making unethical are shared through tacit agreements among members. decisions that maximize only their personal or their firm’s Furthermore, managers’ ethical judgments are based also on benefit rather than pursuing mutually beneficial outcomes for utilitarianism, in that they believe their behavior to be right all firms in the supply chain. Hill et al. (2009) and Drake and when it is seen to produce, for their companies, benefits that Schlachter (2007) found that unethical behaviors between are perceived via cost-benefit analysis (Velasquez, 1988; organizations compromise the inter-organizational trust that is Wisner et al., 2012). Thus, the ethical philosophies used to essential to buyer-supplier relationships. Because managers’ measure judgments’ ethical levels are the philosophical moral intuitions influence ethical behaviors in inter- foundations on which managers’ ethics are evaluated. organizational relationships (Boomer et al., 1987), the ethical Trust and collaboration in SCM have been seen as decision-making process should be managed by organizations significant factors in improving supply chain performance to develop and enhance collaboration with partner firms. (Barratt, 2004; Batt, 2003; Patton, 1999; Joshi and Stump, Many recent attempts to study issues such as ethical 1999). In the marketing and SCM literature, trust has been judgment, ethical intention and ethical behavior have been studied as an essential relational factor in successful based on ethical decision-making frameworks (Schwepker and inter-organizational transactions (Johnston et al., 2004; Mohr Schultz, 2013). Marketing studies for example have taken an and Spekman, 1994; Siguaw et al., 1998). Some researchers ethical-judgment or behavioral-intention perspective, both of have defined trust as an intention to rely on a partner firm which are perceived as critical elements in ethical based on confidence (Mayer et al., 1995; Williams, 2001).

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That is, trust is a vulnerable psychological condition under 1991). In SCM studies, it is used to examine moral dilemmas which one is ready to take and accept potential risks based on and apply scenario-based role playing techniques positive expectations about the partners’ intentions or (Rungtusanatham et al., 2011). Some studies in ethics have behaviors. Rousseau et al. (1998) assert that the willingness to illustrated decision-making situations through this method, accept vulnerability develops when the relationship consists of which induces detailed responses that mirror reality mutual and repeated interactions. Cai et al. (2010), Doney (Alexander and Becker, 1978). and Cannon (1997), and Zacharia et al. (2009) define trust as A scenario, or vignette, is a short story about a character in a the expectation or belief that the partner will not engage in certain situation that invites an interviewee to answer questions opportunistic behavior but will act favorably, competently and about it (Finch, 1987). Barter and Renold (1999) observed that honestly. According to this view, trust between partners scenario analysis is a technique for measuring perceptions, reflects a firm’s expectation that it will engage in fair business opinions, faith and attitudes through respondents’ answers about transactions despite the potential risks. a certain scenario or situation. This kind of analysis can be Supply chain collaboration is defined as joint work that useful in treating subjects that are difficult for respondents to generates better performance through joint planning and execution of supply chain operations by two or more discuss (Barter and Renold, 1999). Having respondents talk independent participants (Simatupang and Sridharan, 2002). about a scenario can create a more comfortable and less Supply chain collaboration seeks, in other words, to effectively threatening atmosphere than would be created if they were meet, through close cooperation, end users’ needs at low asked to speak about their personal experience (Barter and costs. Through such collaboration, supply chain participants Renold, 1999). Moreover, scenario analysis is relatively share information and resources and take risks to achieve effective in avoiding bias, as it uses a story about a fictional common, mutually beneficial goals (Min et al., 2005). Studies character in a fictional situation, and asks questions about on SCM also argue that supply chain collaboration constitutes what the respondent, a third party, would do (Alexander and joint efforts to redesign supply chain operations in a way that Becker, 1978). leads to better services and cost reduction The scenario technique is a particularly effective means of (Hammer, 2001). Joint decision-making, joint problem- extracting responses to questions about sensitive subjects solving, benefit/cost/risk sharing, goal congruence and (Barter and Renold, 1999). It is often used to measure factors information sharing are the factors most frequently discussed such as individual judgment, subjective decision-making and in the SCM literature (Biggemann, 2012; Cao and Zhang, beliefs related to ethical dilemmas. Previous studies, such as 2011; Min et al., 2005; Simatupang and Sridharan, 2002, Kujala (2001) and Schwepker and (2013), used 2005; Vereecke and Muylle, 2006). scenarios to measure ethical judgments. Indeed, the use of scenarios is common among ethical studies in the marketing 2.2 Scenario analysis field, as it helps standardize the influence of ethics in Most studies on ethics in SCM have followed behavioral decision-making situations (Chonko et al., 1996). However, approaches to ethical and unethical behaviors, though some very few studies have focused on scenario analysis of ethical other studies on sales ethics, due to the difficulty of measuring dilemmas in SCM. ethical behaviors, have followed an ethical judgment approach More recently, however, SCM studies have shown more instead (Reidenbach et al., 1991; Schwepker and Good, 2013; interest in scenario analysis (Rungtusanatham et al., 2011). Schwepker and Ingram, 1996). Schwepker and Good (2013) Researchers are approaching scenario analysis as a means of argue that managers’ ethical judgments represent individual understanding why and how operations managers and the decisions about right and wrong (or ethical or unethical). supply chain form judgments, preferences and decisions about Thus, it probably is necessary to take cognitive approaches to

Downloaded by Regenesys Management Pty Ltd At 12:11 22 September 2017 (PT) complicated subjects (Taylor, 2006). Although scenario the definitions and perceptions of ethical dilemmas rather than analysis is frequently used to explore respondents’ ethical focusing on ethical behaviors. Alexander and Becker (1978) frameworks or ethical codes (Barter and Renold, 1999), its use claim that questionnaires and interviews are unreliable as in SCM studies is largely confined to analyses of supply chain methods for studying individual attitudes and behaviors, due risk, supply chain managers’ perceptions of new product to the high probability of self-reporting bias. Although development (Faure, 2009; Mantel et al., 2006) and researchers strive to measure variables that reflect reality, cooperation between buying agencies and suppliers ambiguous questionnaire and interview questions often (Tangpong et al., 2010). Thus, proactive application of receive abstract answers. One alternative is to provide specific scenario analysis to the study of ethical decision-making in and detailed stimuli by offering, by way of scenario analysis, a certain scenario or situation. Such stimuli put respondents in SCM seems to be required. Rungtusanatham et al. (2011) situations requiring decision-making or judgment that closely recommend using the scenario analysis for sensitive subjects reflect reality (Alexander and Becker, 1978). such as conflicts in or breaches of psychological contracts Scenario analysis, also known as the vignette technique between partners. Barter and Renold (1999) claimed that (Alexander and Becker, 1978; Barter and Renold, 1999; Finch, scenario analysis is effective in clearly identifying individual 1987) or scenario-based role-playing (Rungtusanatham et al., judgments in ethical dilemmas. In fact, because scenario 2011), has been used to study phenomena such as attitudes, analysis has been used effectively to measure the morality of cognition, faith and norms (Finch, 1987). Scenario analysis sales personnel in studies on it should also be has been used to study ethics in marketing and other effective in measuring supply chain managers’ ethical disciplines (Chonko et al., 1996; Singhapakdi and Vitell, judgments within ethical decision-making frameworks.

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2.3 Research hypotheses H1.2. Managers’ ethical judgments in information This study performed scenario analysis with the aim of management have a positive effect on trust. identifying the impact of managers’ ethical judgments on trust and supply chain collaboration in transactions with suppliers. H1.3. Managers’ ethical judgments on payments have a We developed four scenarios to represent ethical issues in the positive effect on trust. supply chain and proposed the models and hypotheses shown H1.4. Managers’ ethical judgments in inventory management in Figure 1. have a positive effect on trust. We posit that managers’ ethical judgments have a positive effect on trust in transactions with suppliers. Trust can be This study contends that trust has a positive effect on supply defined as the belief of one firm, based on experience, that its chain collaboration. Many studies on marketing and SCM partner will respect its rights in ethical dilemmas (Carnevale have examined the influence of trust on supply chain and Wechsler, 1992). Along these lines, Hosmer (1995) collaboration. Morgan and Hunt (1994) suggest, for example, describes trust as the expectation of ethical and fair behaviors. that trust and commitment are major parameters for Such interpretations of trust suggest that ethical judgments in successful exchanges, and argue that firms want to find ethical dilemmas will raise a firm’s expectation that its partner trustworthy partners. Thus, relationship commitment is will not take unexpected actions that will negatively affect it supposed to have a significantly positive relationship on trust (Anderson and Narus, 1990). Thus, ethical decision-making as a key decision variable. Kwon and Suh (2005) also assert is important in SCM as a way to build trust and maintain the positive influence of trust on collaboration in the context collaborative relationships. This view is reflected in the of SCM. Johnston et al. (2004), investigating the literature as well. Kwon and Suh (2005) observed that buyer-supplier relationship, identify trust in the supplier as the potential , the risk that a party may engage in variable that determines joint responsibility, shared planning opportunistic behaviors, has a negative effect on trust. Since a and the flexibility needed to cope with unexpected situations manager who makes ethical judgments in ethical dilemmas is and solve problems within the context of a less likely to exhibit opportunistic behavior, it can be assumed relationship. Therefore, the following additional hypothesis is that a higher moral standard will improve trust between proposed: partners. Some researchers of ethical decision-making have H2. Trust has a positive effect on supply chain found that mutual trust can be obtained only if business collaboration. partners behave ethically (Daboub, 2002; Daboub and Calton, 2002, Piercy and Lane, 2006). Consequently, 3. Methodology managers who make ethical judgments in ethical dilemmas will have the belief that their partners will also behave ethically 3.1 Scenario development and measurements and fulfill their obligations. This study therefore proposes the The critical issue for this study was how to measure managers’ following hypotheses: ethical judgments in the supply chain. The three-stage scenario development and verification process suggested in H1. Managers’ ethical judgments have a positive effect on Rungtusanatham et al. (2011) was adopted to create a trust in transactions with suppliers. scenario that reflects the typical ethical issues encountered in the supply chain. First, in the pre-design stage, articles from H1.1. Managers’ ethical judgments in the process of bidding newspapers and relevant institutes were accessed to collect and contracting have a positive effect on trust. data on ethical judgments in the supply chain context. Second, in the design stage, scenarios were written based on the data Figure 1 Hypothesized relationships collected during the design stage. Third, in the post-design Downloaded by Regenesys Management Pty Ltd At 12:11 22 September 2017 (PT) stage, the scenarios were reviewed for clarity and missing information. Four scenarios finally were developed through in-depth interviews with experts in the relevant fields. Scenario 1, about bidding/contracting, involves competitive bidding focused on , unilateral contracting and unilateral supply price cut. Scenario 2 involves information monopoly as a method of information management and of dealing with shifting risks emerging from . Scenario 3 concerns payment on notes and delayed payment. Scenario 4, about inventory management, involves unilateral inventory allocation, unilateral product discontinuation, unfair return of and refusal to receive ordered goods. Additional detailed scenarios are described in Table I. This study employed a multi-dimensional ethical scale modified for the supply chain context to measure respondents’ ethical value frameworks and, thereby, evaluate their ethical judgments (Reidenbach and Robin, 1988, 1990; Reidenbach et al., 1991). The participants read four scenarios illustrating

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Table I Descriptions and sources of scenarios Scenario Description Relevant references Scenario 1 (EJ1): Bidding/Contracting Company A selects partners every year through competitive Carter (2000a, 2000b), Hill et al. (2009), bidding, mainly focusing on price. Right after selection, it Centre of Large and Small Business verbally decides what will be in the contract, and Cooperation (2006, 2011a, 2011b, 2011c), announces the official contract later. Even after the Korea Fair Commission (2011) contract is signed, the company leaves the partner for another that offers better conditions or asks for changes in the agreement to make it similar to another. Besides, company A regularly requests supply price cut at a fixed rate when it continues the contract with the existing supplier. Scenario 2 (EJ2): Information Company A is provided with technological details relating Singhapakdi et al. (1996), Trevisan (1986), management to delivered goods and by its Centre of Large and Small Business partner. However, it refuses to do the same when its Cooperation (2006, 2012), Cyber Support partner requests similar data, expressing concerns over Centre for Accompanied Growth (2011), technology and information leaks. Company A also often Korea Commission (2011) fails to provide data on inventories and expected sales volumes to its partner, even when the inventories from the partner are piling up. Scenario 3 (EJ3): Payments Company A frequently pays notes of certain amounts to its Centre of Large and Small Business partner to make payments. Company A sometimes makes Cooperation (2006, 2011a), Korea Fair late payments depending on the situation. Trade Commission (2011) Scenario 4 (EJ4): Inventory When company A has finished goods piling up due to a Trevisan (1986), Cyber Support Centre for management sluggish or poor operation, it forcefully allocates Accompanied Growth (2011) the products to its partner for sales. It also often stops producing goods that are not selling without discussing this decision with its partner. If the stock of inventory increases due to poor market conditions, it sometimes sends back or refuses to receive the goods it ordered.

unethical behavior in various supply chains, and responded to and Mentzer, 2004; Rinehart et al., 2004; Moberg and Speh, ethical judgments based on relativism and utilitarianism, using 2003). Trust in this study encompasses both the initial trust a reverse seven-point Likert scale (1 ϭ “strongly deny” to 7 ϭ that each partner has in the early stages of a business “strongly confirm”). When the reverse scale was converted, transaction and the trust that develops during the . the respondents with a high score on the unethical scenarios Trust in the honesty of each other’s intentions and in the were evaluated as having a high level of ethical judgment, partner’s unique knowledge and skills are often assessed in the while those with a low score were evaluated as having a low early stages of the relationship, representing a partner’s level. Meanwhile, the respondents were asked to measure goodwill and competence, respectively (Doney and Cannon, ethical judgment on the basis of relativism (the belief that 1997; Min and Mentzer, 2004; Moberg and Speh, 2003; something is right if it is culturally and practically accepted) Rinehart et al., 2004). Trust that develops during the Downloaded by Regenesys Management Pty Ltd At 12:11 22 September 2017 (PT) and utilitarianism (the belief that something is right if it relationship was measured as a function of respect for and produces benefits according to a cost-benefit analysis) as willingness to accept the partner’s specialty, trust in the philosophical approaches to ethics applied realistically partner’s goodwill and expertise and trust in the partnership (Velasquez, 1988; Wisner et al., 2012). The survey process (Doney and Cannon, 1997; Min and Mentzer, 2004; statements, drawn from work on ethical philosophy in Moberg and Speh, 2003). Reidenbach and Robin (1988) were as follows: “a company Second, supply chain collaboration was measured by six eventually increases its profits”, “a company’s overall items drawn from studies on the supply chain. Joint operational efficiency improves” and “it is helpful for a decision-making refers to the process by which supply chain company to continue a business relationship with its partner”, partners coordinate decisions in supply chain planning and as based on utilitarianism, and “it is acceptable from a operations that optimize supply chain benefits (Cao and practical view”, “it is acceptable if the partner does not suffer Zhang, 2011; Simatupang and Sridharan, 2002). Joint a great loss or damage”, as based on relativism. Following problem-solving covers supply chain managers’ joint efforts to McMahon and Harvey (2007), the average was calculated by work out solutions (Min et al., 2005). Goal congruence adding up the respondents’ scores on all of the items for each reflects the degree of supply chain goal agreement among scenario. supply chain partners (Angeles and Nath, 2001; Cao and In keeping with the literature, the survey identifies several Zhang, 2011). Benefits and costs/risks sharing are kinds of trust and supply chain collaboration practices as variables. incentive alignment that refer to the process of sharing First, trust was measured by four items drawn from Doney benefits, costs and risks among supply chain members, such as and Cannon (1997) and from studies on trust in SCM (Min in the sharing of loss on order changes or the sharing of savings

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on reduced inventory costs (Cao and Zhang, 2011; goodness-of-fit of the measurement model confirmed the Simatupang and Sridharan, 2005). Information sharing following: Scenario 1 (GFI ϭ 0.927, AGFI ϭ 0.885, CFI ϭ measures the extent to which supply chain managers share 0.948, NFI ϭ 0.929, RMSEA ϭ 0.085, X2 ϭ 143.439, df ϭ relevant information, such as inventory levels and operational 42, p ϭ 0.00); Scenario 2 (GFI ϭ 0.923, AGFI ϭ 0.880, data, with their supply chain partners (Simatupang and CFI ϭ 0.946, NFI ϭ 0.926, RMSEA ϭ 0.087, X2 ϭ 148.693, Sridharan, 2005; Vereecke and Muylle, 2006). All items were df ϭ 42, p ϭ 0.00); Scenario 3 (GFI ϭ 0.929, AGFI ϭ measured on a seven-point Likert scale, with 1 representing 0.888, CFI ϭ 0.949, NFI ϭ 0.930, RMSEA ϭ 0.084, X2 ϭ “very negative” and 7 “very positive”. 140.710, df ϭ 42, p ϭ 0.00); Scenario 4 (GFI ϭ 0.930, AGFI ϭ 0.890, CFI ϭ 0.952, NFI ϭ 0.932, RMSEA ϭ 3.2 Data collection and analysis method 0.082, X2 ϭ 136.524, df ϭ 42, p ϭ 0.00). The GFI (Goodness Data were collected from large companies and SMEs in South of Fit Index), AGFI (Adjusted GFI), CFI (comparative fit Korea belonging to one supply chain or more. Around 1,000 index) and NFI (normed fit index) should be 0.9 or more; the samples were randomly collected from those companies, RMSEA (root mean square error of approximation) should be which had been registered in the National Survey on 0.1 or lower for goodness-of-fit. In all cases, the GFI, CFI and Businesses 2011 conducted by the Korea Chamber of NFI were 0.9 or higher (except for AGFI), and RMSEA and Industry. Managers working in SCM were posted lower than 0.1 (the AGFI was 0.880–0.890, very close surveyed. Data were collected from November 19, 2012 to to the recommended level). Considering the possible January 20, 2013 through questionnaires sent via e-mail or inconsistencies resulting from the samples’ features, the regular mail. A total of 341 questionnaires were collected out model’s goodness-of-fit was deemed acceptable. Convergent of 1,500 sent (for a response rate of 22.7 per cent). Five were validity was also confirmed with standardized factor loadings excluded, as they were considered inappropriate, leaving 336 of 0.5 or higher (Fornell and Larcker, 1981). They were also valid samples for statistical analysis. The 336 firms in the final confirmed through the composite reliability (CR) and average sample represent major industrial groups in variance extracted (AVE). The CR and AVE values for trust (76.19 per cent), followed by / were 0.793 and 0.624, respectively, and those for supply chain information service (5.36 per cent), transportation (4.76 per collaboration were 0.836 and 0.540; both reliability and cent) and retail (4.46 per cent). Among them, 58.33 per cent convergent validity were thus secured, with criteria values of the respondent firms had a work force of fewer than 500 above 0.6 and 0.5 (Bagozzi and Yi, 1988; Fornell and Larcker, employees; 11.61 per cent employed between 500 and 1,000 1981). Finally, the discriminant validity of the composing employees, and 27.98 per cent employed more than 1,000. concepts was examined; it was considered secured, as the square of the correlation coefficient among each factor was 4. Results and analysis smaller than the AVE (Fornell and Larcker, 1981), and the This study, before testing the hypotheses, tested the reliability square of the correlation coefficient of trust and supply chain and validity of the measurement variables using SPSS 18.0 for collaboration was 0.551, slightly higher than supply chain Windows. First, Cronbach’s alpha was used to verify the collaboration’s AVE value of 0.540. Thus, though the internal consistency of the measurement variables. Table II discriminant variables between trust and supply chain summarizes the descriptive , reliability (diagonal) and collaboration were not fully secured, the study used the former coefficients for each factor. In the reliability test, the as an antecedent variable for predictability or willingness, and Cronbach’s alpha of trust and supply chain collaboration was the latter as an outcome variable for joint efforts in supply 0.852 and 0.871, respectively, as seen on the diagonal of chain activities. Table II, and all of the scenarios showed an alpha of above Structural equation modeling was employed, using AMOS 0.7, indicating good reliability (Hair et al., 2006). 18.0, to test the hypotheses. Jones (1991) argued that the Downloaded by Regenesys Management Pty Ltd At 12:11 22 September 2017 (PT) A confirmatory factor analysis was conducted to confirm the features of moral issues influence people’s ethical judgments. convergent validity and discriminant validity with AMOS Accordingly, Schwepker and Good (2013) analyzed their 18.0. O’Leary-Kelly and Vokurka (1998) claimed that structural model by dividing it into three different scenarios. convergent validity and discriminant validity can be tested Similarly, this study conducted its structural equation with the measurement model of the structural equation. The modeling by dividing each scenario into four separate models.

Table II Descriptive statistics and inter-correlation matrix of variables Supply chain Variable Mean value SD EJ1 EJ2 EJ3 EJ4 Trust collaboration EJ1 4.384 1.295 (0.867) (0.865) ءءEJ2 4.681 1.172 0.672 (0.859) ءء0.539 ءءEJ3 4.771 1.209 0.434 (0.850) ءء0.586 ءء0.638 ءءEJ4 5.047 1.140 0.543 (0.852) ءء0.182 0.099 ءء0.218 ءءTrust 5.096 1.051 0.155 (0.871) ءء0.758 ءء0.235 ء0.128 ءء0.179 ءSupply chain collaboration 5.230 0.879 0.123 ;p Ͻ 0.01; the parentheses on the diagonal are the Cronbach’s alphas; Ethical Judgments: EJ1-Scenario 1; EJ2-Scenario 2 ءء ;p Ͻ 0.05 ء :Notes EJ3-Scenario 3; EJ4-Scenario 4

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Table III Hypothesis test results, standardized parameter estimates and goodness-of-fit statistics Independent variable Dependent variable Scenario 1 Scenario 2 Scenario 3 Scenario 4 Acceptance H1 partially accepted ءء0.209 0.111 ءء0.226 ءءEthical judgments ¡ Trust 0.164 H2 accepted ءء0.872 ءء0.870 ءء0.868 ءءTrust ¡ Supply chain collaboration 0.869 ␹2 145.160 150.428 141.001 138.845 df 43 43 43 43 p-value 0.000 0.000 0.000 0.000 GFI 0.926 0.923 0.929 0.929 AGFI 0.887 0.882 0.891 0.890 CFI 0.948 0.945 0.950 0.951 NFI 0.928 0.926 0.929 0.931 RMSEA 0.084 0.086 0.082 0.082 p Ͻ 0.01 ءء :Note

Table III shows the results of the structural equation modeling performance in the supply chain. In ethical dilemmas faced by for the proposed study model, which, as indicated, exhibited working-level personnel concerning bidding/contracting, acceptable goodness-of-fit. The fact that the same results information management and inventory management, a accrued from most of the scenarios indicates that the model higher level of ethical judgment encourages the expectation was consistent even across the different ethical supply chains. that the business partner will behave ethically and fairly, which In the tests for H1 (regarding the relation between the ultimately leads to greater trust. manager’s ethical judgments and trust), Scenario 1 (beta ϭ While prior literature has introduced significant antecedents 0.164, p Ͻ 0.05), Scenario 2 (beta ϭ 0.226, p Ͻ 0.05) and of inter-organizational trust such as boundary spanning Scenario 4 (beta ϭ 0.209, p Ͻ 0.05) were accepted, whereas capabilities of buying agencies (Zhang et al., 2011), efficient Scenario 3 was dismissed at the 5 per cent level. Thus, the first communication (Hsu et al., 2008; Morgan and Hunt, 1994) three hypotheses (H1.1 to H1.4, except H1.3) were significant and sharing information technologies (Fawcett et al., 2007; at a reliability level of 95 per cent. A higher level of ethical Frasquet et al., 2008; Ryssel et al., 2004), the current research judgment displayed in an ethical dilemma faced by a manager extends the area to the comprehensive understanding of leads to a stronger intention to rely on each other: the ethical judgment by boundary-spanning personnel. This manager’s ethical judgment turned out to be the antecedent research suggests that it – in line with the social requirement of variable that promoted faith in and an expectation of fair ethical and fair businesses – is another dimension of behavior from the partner company. H2 (on the relation organizational competitiveness as it would enhance the quality between trust and supply chain collaboration) subsequently of the mutual relationships between partner firms and improve ϭ was tested for each scenario. As expected, Scenario 1 (beta the effectiveness of SCM. This paper also extends the Ͻ ϭ Ͻ 0.869, p 0.05), Scenario 2 (beta 0.868, p 0.05), framework of ethical decision-making in business to the level ϭ Ͻ ϭ Scenario 3 (beta 0.870, p 0.05) and Scenario 4 (beta of supply chains. The research suggests that firms consider Ͻ 0.872, p 0.05) were all accepted, which indicated that H2.1 internal ethical judgments on supplying firms an important to H2.4 were significant at a 95 per cent reliability level. This asset to be continuously nurtured and invested since a strong also demonstrated that trust is the antecedent variable that supply base often becomes an important asset leading to improves supply chain collaboration: that is, a high level of improvements their business performance in the long run Downloaded by Regenesys Management Pty Ltd At 12:11 22 September 2017 (PT) trust has a good chance of leading to successful supply chain (Asare et al., 2013). collaboration. One interesting finding of this study is that ethical judgments concerning payments on notes and late payments 5. Discussion do not have any significant effect on trust. It can be inferred This paper examined how managers make ethical judgments that perhaps trust is based initially on a partner’s reputation or when faced with ethical dilemmas in the supply chain, and past performance (McKnight et al., 1998), and that because analyzed how those ethical judgments affect trust in payments on notes or late payments usually occur at the end buyer-supplier relationships. We found that a high level of of a partnership, it can be difficult to assess a manager’s ethical ethical judgment among working-level personnel in a supply judgments or behavior – or to evaluate trust – on such a basis. chain enhances trust between buyers and suppliers, except for The above-noted results have important implications for the payment situations. Moreover, this study found a positive buyer-supplier relationship in the supply chain. First, ethical linkage between trust and supply chain collaboration, as in judgments, a frequent focus in and Kwon and Suh (2005), which signifies that the buyer-supplier business ethics studies, have been expanded to supply chain relationship continues to be based on trust when supply chain studies and re-interpreted as a variable of managers’ managers’ ethical judgment level is high, ultimately leading to decision-making in ethical dilemmas. Studies on supply chains joint efforts in supply chain activities. This result confirms that heretofore have focused on ethical behaviors and their the ethical judgments of boundary-spanning personnel, consequences. But people’s ethical behavior is guided by their frequently analyzed in the literature ethical values, which affect their ethical judgment (Hosmer, (Schwepker and Good, 2013), also influence relationship 1995); indeed, ethical judgment has been used as an outcome

65 Ethical judgments in supply chain management: a scenario analysis Journal of Business & Industrial Marketing Byoung-Chun Ha and Hyunjeong Nam Volume 31 · Number1·2016·59–69

variable in many sales ethics studies, as the social desirability data and select typical scenarios. It was also difficult to bias complicates the measurement of ethical behavior measure and judge the validity and appropriateness of the (Reidenbach et al., 1991; Schwepker and Good, 2013; scenarios accurately (this study represents an early Schwepker and Ingram, 1996). This study therefore extended application of those scenarios to the supply chain). Future the cognitive approach to ethical decision-making to the studies no doubt will enhance the validity of the scenarios supply chain. and revise and supplement the measurement items. Second, this study applied scenario analysis to the Second, managers’ ethical judgments in the supply chain measurement of ethical judgment levels using measurement are closely related to their ethical behaviors. As studies have items including utilitarianism and relativism. The argued that ethical judgment is a critical antecedent of ethical measurement items on the multidimensional ethics scale are behavior (Blasi, 1980), future studies should examine how five ethical philosophies (deontology, utilitarianism, managers’ ethical judgments affect ethical behaviors in the relativism, egoism, justice) (McMahon and Harvey, 2007). supply chain and how ethical decision-making influences Our findings add to this by suggesting, from the SCM SCM. perspective, a specific combination: utilitarianism, relativism. Indeed, because supply chain ethics are closely concerned with the issues of collaboration and maximization of benefits, References a different approach is needed. Utilitarianism, which measures Alexander, C.S. and Becker, H.J. 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