The Interplay Between Supplier-Specific Investments and Supplier Dependence: Do Two Pluses Make a Minus?

Abstract

Supplier resources are critical to the success of downstream firms. The relational view and resource dependence theory predict how supplier-specific investments and supplier dependence make the supplier more willing to allocate its best resources to the focal buyer relative to other buyers. However, these theories are ambiguous regarding the interplay between these two constructs. Specifically, the combination could either create relational synergies that benefit the focal buyer or create a situation in which the supplier reconsiders its resource allocation decisions and potentially allocates its resources to the accounts of other buyers. We investigated these competing views by building on two independent dyadic datasets. We found positive effects for both a buyer's supplier-specific investments and supplier dependence on supplier resource allocation, which is measured as the supplier's allocation of physical and innovation resources to the focal buyer relative to competing buyers. However, we also found evidence that supplier dependence negatively moderates the effect of supplier-specific investments on supplier resource allocation. Hence, the effect of supplier-specific investments weakens when the supplier is dependent on the buyer's business volume. These findings make an important empirical contribution to the literature by clarifying the dual workings of supplier-specific investments and supplier dependence as mechanisms to influence supplier resource allocation. We discuss several implications for the buyer-supplier relationship literature and the broader management literature.