Supplier dependence and R&D intensity: The moderating role of network centrality and interconnectedness

Abstract

This study examines whether financial dependence upon a few customers is negatively related to the allocation of innovation resources of supplier firms. Furthermore, this study investigates whether these negative effects of supplier dependence on research and development (R&D) intensity are reduced when the supplier leverages social capital conceptualized in terms of eigenvector centrality and interconnectedness. Using panel data, we find that a supplier firm's dependence upon major customers has a negative relationship with the supplier firm's R&D intensity. Our results, however, reveal that a dependent supplier having high eigenvector centrality or working with other companies that are densely connected to each other mitigates the negative effects of supplier dependence on R&D intensity. These findings highlight the importance of external information or resources being available in supply networks when suppliers that are dependent upon major customers explore and exploit opportunities for new product development.

The Implications of Firm‐Specific Policy Risk, Policy Uncertainty, and Industry Factors for Inventory: A Resource Dependence Perspective

“…Following standard practice (e.g., Heckman, 1979), we tested for this bias by comparing our final data set with the original data set. Using the original data set, we created a dummy variable that was coded as one if the firm‐year observation was included in our final data set and zero if it was not (Kim & Zhu, 2018). We then estimated a probit model with the dummy variable as the dependent variable and our firm‐level variable of interest—firm‐specific policy risk—and firm‐level control variables as the independent variables.…”

Common institutional investors and supplier performance in supply chains

“…Our second hypothesis relies upon the power dependence theory, which posits that the higher‐power party uses its power to appropriate value from the lower‐power party (Emerson, 1962). The literature contends that a supplier's dependence on a given buyer grows in proportion to the fraction of the supplier's total sales that are consumed by the buyer (Elking, Paraskevas, Grimm, & Corsi, 2017; Kim, 2017; Kim & Zhu, 2018; Lanier Jr et al, 2010). Similarly, a buyer's dependence grows in proportion to the fraction of its total purchases provided by the supplier.…”

“…A number of researchers argue that asymmetric dependence in a buyer–supplier relationship, namely the differential levels of dependence of one partner on the other, creates power imbalance which encourages opportunism, primarily because the dependent (weaker) party lacks abilities to influence the independent (stronger) party (Casciaro & Mikolaj, 2005; Elking et al, 2017; Kim & Zhu, 2018; Park & Ungson, 1997). Thus, asymmetric dependence benefits the higher‐power party, but harms the lower‐power party in the short term.…”

“…Park and Ungson (1997) document how dependence asymmetries lead to instability and dissolution in joint ventures. Kim and Zhu (2018) show that suppliers' lack of monitoring ability and financial distress caused by heavy dependence on major buyers limit their abilities to invest in R&D.…”

“…We measure asymmetric dependence ( ADEP i,t ) of a supplier on a buyer as the distance between sales dependence (i.e., supplier dependence on the buyer) based on the percentage of supplier sales to the buyer and cost dependence (i.e., buyer dependence on the supplier) based on the percentage of buyer cost of goods sold from the supplier (Elking et al, 2017; Kim, 2017; Kim & Zhu, 2018; Lanier Jr et al, 2010). Factors such as product complexity, requirements for relationship‐specific investments, and resource scarcity (e.g., technological know‐how) can also cause asymmetric dependence in buyer–supplier relationships.…”