The acquisition, assimilation, and exploitation of heterogeneous, valuable knowledge-based resources contribute critically to a firm’s competitive advantage and superior performance. Research in supply chain and strategic management further indicates that abnormal returns derive not only from resources within a firm but also from those outside of the firm’s boundaries. Attaining such external resources often involves acquiring knowledge from external ties. In supply chain management area, researchers have highlighted the positive role of relational ties in fostering performance and knowledge acquisition. Increased socialization between the buyer and supplier contributes to the creation of relational capital that leads to deeper interfirm communication and knowledge sharing. However, recent supply chain management research cautions about the potential dark side of highly embedded ties, which may become a source of blindness that restrict information flows and even bring in the risk of opportunistic exploitation that hurts knowledge flows. Thus it remains unclear whether relational ties facilitate or inhibit knowledge flows between embedded parties.
Dr. Simon Sheng and his colleagues address this controversy by studying the following questions:
What is the real relationship between inter-firm relational ties and knowledge sharing between the two firms? Does the shape of the relationship depend on the strength of the ties?
As an informal governance mechanism, how do relational ties interact with formal governance mechanism, i.e., inter-organizational contracts, to influence knowledge acquisition between two firms?
How does the industrial context surrounding the inter-firm exchanges ( i.e., industrial competitive intensity) influence the impact of relational ties on knowledge acquisition?
To address these research questions, Dr. Sheng and colleagues build on a relational view and transaction cost economics to examine how manufacturer’s relationship with its major supplier affects its acquisition of specific, complex knowledge. Results from a sample of 385 manufacturer–supplier exchanges in China demonstrate that a buyer’s relational ties with its major supplier have an inverted U-shaped effect on knowledge acquisition from this supplier, and such inverted U-shaped relationship is stronger (steeper) when contract specificity is high and competition is intensified.
This study offers important managerial implications to supply chain managers too. First, managers should be aware of the benefits and downsides associated with relational ties. Although ties with supply chain partners provide access to valuable information, a strong relation may create a lock-in risk, such that it prevents the firm from obtaining know-how from its partners. Second, managers should know how to employ formal and informal mechanisms to manage knowledge acquisition from their supply chain partners. When managers intend to draft detailed contracts, it is beneficial to develop a moderate level of relational ties to achieve a high level of knowledge acquisition. However, when tie strength is already very strong, managers should avoid using detailed contracts because contracts become dysfunctional for embedded ties. Third, when competition is high, firms can leverage their preexisting ties to obtain valuable knowledge resources. Overall, our findings warn about the dark side of very strong ties and suggest that companies should reduce their reliance on highly embedded suppliers; instead, firms should develop a supplier network with moderate levels of tie strength to keep them open to new information and opportunities.
Dr. Simon Sheng (PhD, Virginia Tech) is Associate Professor of Marketing at the University of Alabama at Birmingham. His research has been published in the Journal of Marketing, Journal of the Academy of Marketing Science, Journal of Operations Management, International Journal of Research in Marketing, Industrial Marketing Management, Journal of Business Research, Marketing Letters, and others. This article appeared in Journal of Operations Management, 2014, 32 (3), Page 88-98.