Power, Relationship Strength, and Structural Holes in a Supplier's Network of Major Customers

Document Type

Conference Proceeding

Publication Date

11-30-2016

Publication Title

Proceedings of the Academy of Management Annual Meeting

DOI

10.5465/ambpp.2016.14485abstract

ISSN

2151-6561

Abstract

This study investigates the economic risks and benefits of embedded relationships with major customers accruing to supplier firms. Due to high levels of dependence a supplier has on its major customers, researchers have expressed concerns about the increasing concentration and bargaining power of customers in those embedded relationships. In the presence of power imbalance, how relationship strength and structural holes in networks of major customers affect a supplier’s profitability is the central interest of this study. Using 716 suppliers and their networks of major customers drawn from the Compustat database, this study shows that strengthening ties with major customers enhances the supplier’s profitability in terms of return on assets (ROA) and return on sales (ROS), while reducing the negative effect of customers’ bargaining power. The findings also suggest that, in networks of power-unbalanced relationships with major customers, structural holes tend to reduce the supplier’s ROA and ROS. Whereas previous research on supply chain networks focused mainly on the networks of major suppliers, this study fills a gap in the literature by exploring the relational and structural characteristics of networks of major customers and their impacts on the financial performance of suppliers.

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