Can small firms gain relational advantage? Exploring strategic choice and trustworthiness signals in supply chain relationships

Abstract

Organisational theory explicates that partners who overcome the challenges to developing trust-based interorganisational relationships can gain a vital source of competitive advantage. However, the extant relational research focuses on large, resource-rich entities. We, by contrast and extension, investigate whether small and medium-sized firms can leverage supply chain relationships for competitive advantage. Specifically, power imbalances and resource constraints are additional challenges common to small firms that may diminish their desire and ability to pursue relational advantage. However, we posit that effective, trust-based governance can enable small and medium-sized firms to overcome their unique challenges to enter more collaborative relationships and thereby improve operational and firm performance. Our findings from a survey of manufacturing firms provide evidence that small and medium-sized firms can gain performance benefits when they (1) make the conscious choice to pursue trust-based collaboration and (2) strategically demonstrate trustworthiness.