Does supplier concentration impede firms’ digital innovation? A resource dependence perspective

Abstract

The advent of the digital economy has ushered in a new era of digital innovation. Given that dependence on key suppliers significantly affects focal firms’ behavior and decision-making, it still remains unclear whether concentrated suppliers impede or facilitate focal firms’ digital innovation. Drawing upon resource dependence theory, this study aims to explore how supplier concentration influences focal firms’ digital innovation. Furthermore, since internal resources can alter the dependency between focal firms and suppliers, this study introduces the tangible resources represented by slack resource and intangible resources represented by human capital as mechanisms to mitigate firms’ dependence on key suppliers. Using a dataset of 2,347 unique Chinese listed manufacturing firms from 2008 to 2020 we empirically reveal a negative impact of supplier concentration on digital innovation. Further, we discover that operational slack, technical experience in top management teams (TMTs), and employee education background mitigate the negative influence of supplier concentration on digital innovation. Surprisingly, the direct moderating role of financial slack is not significant, but the additional analysis indicates that the moderating effect of operational slack is strengthened in firms with high financial slack. Robustness tests reaffirm these findings. This study extends the growing digital innovation literature and provides actionable insights for firms to effectively leverage their resources to pursue digital innovation in situations of high supplier concentration.