Mitigating the performance implications of buyer’s dependence on supplier: the role of absorptive capacity and long-term relationship

Abstract

Purpose

Buyer’s dependence on its key supplier for critical resources and capabilities is generally considered as creating a disadvantageous position for the buyer and undermining its business performance. This study aims to invoke arguments from resource dependence theory (RDT) to examine if this adverse effect of buyer’s dependence is moderated by the buyer’s absorptive capacity and a long-term relationship with the key supplier.

Design/methodology/approach

Using a data set drawn from 204 manufacturing firms in Australia, this study tested the proposed model using hierarchical moderated regression analysis.

Findings

The finding shows that buyer’s dependence on its key supplier by itself has no significant effect on the buyer’s business performance. However, the link between buyer’s dependence on its key supplier and performance is positively moderated by the level of the buyer’s absorptive capacity, as well as by the joint effect of buyer’s absorptive capacity and a long-term relationship with the key supplier.

Practical implications

As buyer’s dependence is often difficult to avoid, the finding of this study is instructive in showing managers how to strategically mitigate the effect of their firm’s dependence on a key supplier; indeed, turn it into a positive outcome.

Originality/value

This is the first study, which integrates the internal and external resources in mitigating the effect of buyer’s dependence on the supplier.

Citation

Prajogo, D., Chowdhury, M., Nair, A. and Cheng, T.C.E. (2020), "Mitigating the performance implications of buyer’s dependence on supplier: the role of absorptive capacity and long-term relationship", Supply Chain Management, Vol. 25 No. 6, pp. 693-707. https://doi.org/10.1108/SCM-07-2019-0254