Types of embedded ties in buyer-supplier relationships and their combined effects on innovation performance

Abstract

Purpose of the Paper -This research analyzes the impact of three types of embedded ties, namely, specialized complementary resources, idiosyncratic investments, and knowledge sharing, on the innovation capacity of the firms. We also study the particularities of the Machine-Tool industry. Theoretical background -Our evaluation of the embedded buyer-supplier ties is based on the potential sources of relational rents proposed by Dyer and Sing (1998). We also draw on Uzzi and Lancaster (2003), Noordhoff et al. (2011), among others, to discuss the positive and negative aspects of embedded ties. Design/Methodology/Approach -Using data from a survey of 202 European machine-tool firms acting as buyers and sellers, we propose and evaluate a Structural Equation model. Findings -Only knowledge-sharing routines exert a significant positive effect on product innovation performance. Neither an increase in the idiosyncratic investments nor in complementary resources and capabilities enhance innovation performance. Also, knowledgesharing routines mediate in the effect from idiosyncratic investments on innovation performance. Research Limitations. -The machine tool industry has unique characteristics that make this generalization difficult. Also, there is considerable difficulty associated with testing more deeply the interrelations among these embedded ties in the long run. It is plausible to understand that these interrelations operate within a gradual process. Originality/Value/Contribution of Paper -This research contributes to a better understanding of the role of embedded ties on innovativeness. To the best of our knowledge, there is no previous international empirical research analyzing the mediation effects among specialized complementary resources, idiosyncratic investments and knowledge sharing, and their effects on the innovation capacity of firms.Keywords -Embedded ties, buyer-supplier relationship, Innovation performance, machinetool industry. JEL CODES M11 1.-INTRODUCTIONDuring the last two decades, the literature on buyer-supplier relationships has drawn attention to the growing importance of collaborative relationships. In their review of the literature between and 2005, Terpend et al. (2008 note that during that time-span, there has been a process of moving away from short-term contracting with numerous suppliers (i.e., arm's 3 length relationships), to greater commitment by means of longer-term relationships with fewer suppliers, and in the form of embedded ties (Uzzi and Lancaster, 2003). Embeddedness theory has its conceptual roots in sociology (Polanyi, 1957;Granovetter, 1985). According to Granovetter (1985), economic exchanges, rather than being entirely 'rational', are influenced by pre-existing social ties. In fact, he argued that "most behavior is closely embedded in networks of interpersonal relations" (Granovetter, 1985, p. 504) In the literature of buyersupplier ties, many researchers present embedded ties as the opposite of arm's-length ties.The later reflect the conventional view of interfirm ties...

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