1.1.1.1 The interaction process
The interaction process is essential for the relationship because it is that element that is developing the connection between the parties. Håkanssons Interaction model refer to and distinguish between two sides of the interaction process which is short-term exchange episodes and and long-term relationships. The short-term exchange episodes perspective describes the exchange between parties of single exchange episodes. The exchange episodes are trading by placing or delivering orders. The long-term relationship is developed through the single exchange episodes. The development is shaping the relation between the parties. The relationships are affected by both parties and can be effected by each episodes. The relationships are developed progressively over time by the interaction of the single exchange episodes (Håkansson, 1982).
This next section describes the short-term individual episodes, first. Afterwards, the long-term relationships are defined.
1.1.1.1.1 Short-term episodes
According to theory, the episodes is exchange between two parties and there are four types of exchange: product or service exchange, information exchange, financial exchange and social exchange (Håkansson, 1982).
1.1.1.1.1.1 Product or service exchange
This element is the core of the exchange. The products or service is essential for the interaction originally begins between the two parties. The product or service element affects the other episode elements by its characteristics and complexity. Increasing in the complex nature of understanding the customer’s needs, design requirements or uncertainties about resources cause changes in the information and social episode elements (Håkansson, 1982).
1.1.1.1.1.2 Information exchange
This element has several aspects, and one of them is the content of information. The can have technical, economical and organisational aspects. The information has a broad spectrum of depth and width. The information can be transferred in two ways which are either personal or impersonal. “Soft data” which is an alignment of an agreement between the two parties, use of a product or general information is transferred via personal contact between the parties. Impersonal is often used for commercial or technical data via digital systems. Organisational characteristics influence the degree of formality in the interaction which may influence the interaction process and relationship between the parties (Håkansson, 1982).
1.1.1.1.1.3 Financial exchange
The quantity of the financial exchange immediately reflects the economic importance of the relationship. Currency exchange is an additional importance part of the relationship and the uncertainties in these exchanges over time (Håkansson, 1982).
1.1.1.1.1.4 Social exchange
The social exchange has a decisive function in reducing uncertainties between the involved parties. The social exchanges have a significant role in the establishment of mutual trust. The social exchanges are mainly relevant when the experience between the two sides is limited, or there exist cultural and spatial differences between the parties. The social exchanges are the episode of the four that mostly shapes the relationships. The social exchanges are avoiding the short-term complications and are continuing the relationship. The social exchanges are most important in the long-term perspective because it interlocks the parties with successful exchanges episodes. A successful execution of the three elements of exchange mentioned above helps to build up a mutual trust which is crucial. The social exchange haves a substantial impact on the interaction process, and it is increasing as the product or service exchange, information exchange and financial exchange increases (Håkansson, 1982).
This section has described the short-term individual episodes. The following section is defining the long-term relationships.
1.1.1.1.2 Long-term relationships
The social exchange episodes have a high influence on the relationship as mentioned in the previous section. The social exchange episodes together with the other episodes will over time, and several iterations of interactions will build up and shaped the relationship. The iterations of episodes will develop roles and responsibilities. The routines become gradually institutionalised, and the actions become more and more esoteric. For a longer period of tome information, and social exchange can be the only exchange without product or service and financial exchange. The adjustment process for the two parties is essential for the building up the relationship. The adjustment process occurs when the parties change what they exchange or the method for the exchanging. The adjustment occurs during a single or major transactions in the period of the time the relationship exist. The adjustment of the four types of exchange can both have a positive and an adverse effect on the relationship. Benefits of the adjustment is e.g. increased revenue and cost reduction. The unfavourable effect is if the parties become too heavily dependent to navigate in the market and be unadaptable (Håkansson, 1982).
The interaction process been elaborated. The following section is describing the the interaction parties.
1.1.1.2 The interaction parties
The interaction of relations between the involved parties is affected by the four types of exchange as well as the characteristics of the parties. The characteristics of the parties includes the organisation and the individuals in the organisation. There are four factors that characterise the involved parties. The four factors is:
• Technology
• Organizational size, structure, and strategy
• Organizational experience
• Individuals (Håkansson, 1982)
The details of the four factors will be described in the following sections.
1.1.1.2.1 Technology
The parties technological level is often a critical element for the interaction between the parties. The development of the relation also depends on the technical level between the parties. It is crucial for the parties that the binding technology between them can be modified towards both their needs. Based on that the technology can be a central factor for the interaction is starting in the beginning, and the exchange of the four types of episodes (product or service exchange, information exchange, financial exchange and social exchange) will occur (Håkansson, 1982).
1.1.1.2.2 Organizational size, structure, and strategy
The organisational size influences the interaction process. The general promise is that the greater party with considerable resources has higher possibility to dominating and influencing the other smaller party in their interaction. The structure of each organisation in regards formalisation, centralisation and specialisation influence the interaction. The structure influences the procedures, the communication medias and the nature of product or service. The structure is a framework where the interaction takes place. The framework can change according to the executed individual episodes in the interaction. The strategy of the parties affects the interaction concerning the development of the collaboration between the parties (Håkansson, 1982).
1.1.1.2.3 Organizational experience
Experience with the current and all other similar relations impact the relationship. The knowledge from the previous experience that is obtained in the organisation influence the management of the relationship. As an example, experience and knowledge from a previous international relation affect the readiness and the capability to establish a new international relationship (Håkansson, 1982).
1.1.1.2.4 Individuals
There are at least two and often more individuals represented from the parties in the interaction. The individual’s preferences, personality, experience and motivation effects the collaboration. The individual’s heterogeneity mainly influences the individual episodes and especially the social exchanges (Håkansson, 1982).
The four factors of the interaction parties have been elaborated. The following section is describing the surroundings, more particularly the environment.
1.1.1.3 The interaction environment
The interaction between the parties is not isolated, but it is an environment. The environment is in a wider context with several aspects. The five aspects of the interaction environment is:
• Market structure
• Dynamism
• Internationalisation
• Position in the manufacturing channel
• The social system (Håkansson, 1982)
The following sections elaborate on the five aspects.
1.1.1.3.1 Market structure
The relationships are considered as one of several similar available within the market national and international. Supply and demand influence the relationship between the parties. The number of possible substitutable relationships impact the encouragement of making long-term relations (Håkansson, 1982).
1.1.1.3.2 Dynamism
The dynamism relates to the market and the relationship. The dynamism influences the relationship in two ways. The two ways are contrary to each other. A close relationship increases the knowledge to the other party. The knowledge simplifies and enables forecasting of actions concerning the other party. Conversely, in a dynamic environment, the opportunity cost can be very high. Only having one or few relationships in the market can increase the level of opportunity cost (Håkansson, 1982).
1.1.1.3.3 Internationalisation
The internationalisation level of the market that the parties operate on influences the parties motivation for developing international relationships. There is a need for some capabilities to developing international relationships. The capabilities that are relevant to have knowledge about is e.g. in the form of international trade, international negotiation and language skills (Håkansson, 1982).
1.1.1.3.4 Position in the manufacturing channel
The parties position in the supply chain can affect a need for involvement with several points in the supply chain. It influences a relationship when a party is directly or indirectly dependent on the others supplier (Håkansson, 1982). The IMP Groups theory has evolved towards a more network based orientation in their subsequent work (Håkansson et al., 1994; Håkansson et al., 1995; Håkansson et al., 2009; Ford, 2011).
1.1.1.3.5 The social system
The social system is characteristic of the wider surroundings of the relationship. The social system includes perceptions, values, norms, attitudes and regulations where the relationships and interaction occurs. The social system has a higher influence in regards international relationships. There may be a barrier in the interaction between some countries and companies that are entering a new industry (Håkansson, 1982).
The interaction environment including the five factors have been elaborated. The following section is describing the the atmosphere.
1.1.1.4 The atmosphere
Each individual episode influences the atmosphere and the atmosphere influence each individual episode. The atmosphere is a result of the relationship and the variables. The variables of the atmosphere are described as; the ability to solve the conflicts or cooperation, the power-dependence relationship between the involved parties, the parties’ mutual expectations and general closeness or distance of the relationship. These mentioned variables shall be understanding as a group of intervening variables, that is defined by several combinations of the environment, specific to a company and interaction process traits. The atmosphere is divided into two dimensions. The two dimensions is the economic dimension and the control dimension which is described in the following two sections (Håkansson, 1982)
1.1.1.4.1 The economic dimension
There are several advantages of a close interaction. The benefits are a reduction of the production cost, reduction of the transaction cost, optimisation of the manufacturing process, increased revenue, new joint product development and exchanging of information. The transaction cost can be lowered with a closer relationship so negotiation, administration and distribution can be managed more efficiently. The production cost can be more integrated and thereby reduced between the parties. The parties can use each other resources, knowledge and material property in order increase revenues. The parties can gain value from developing new products together. Lastly, the parties can have significant valuable commercial and technical information exchanges (Håkansson).
1.1.1.4.2 The control dimension
The closer relationship can reduce the uncertainties by having a better control of and insight into the other party’s operations. The control of each other relates to the power structure among the parties. The power structure is linked to with the parties’ resources and their relative dependencies. The power structure and dependency is not equally divided between the parties. This division can influence that one of the parties has an advantage regards to power (Håkannson, 1982).