How does the position of firms in the supply chain affect their performance? An empirical study

Abstract

The relationship between a firm and its supply chain has been well studied, however, the association between the position of firms in complex supply chain networks and their performance has not been adequately investigated. This is primarily due to insufficient availability of empirical data on large-scale networks. To addresses this gap in the literature, we investigate the relationship between embeddedness patterns of individual firms in a supply network and their performance using empirical data from the automotive industry. In this study, we devise three measures that characterize the embeddedness of individual firms in a supply network. These are namely: centrality, tier position, and triads. Our findings caution us that centrality impacts individual performance through a diminishing returns relationship. The second measure, tier position, allows us to investigate the concept of tiers in supply networks because we find that as networks emerge, the boundaries between tiers become unclear. Performance of suppliers degrade as they move away from the focal firm (i.e., Toyota). The final measure, triads, investigates the effect of buying and selling to firms that supply the same customer, portraying the level of competition and cooperation in a supplier’s network. We find that increased coopetition (i.e., cooperative competition) is a performance enhancer, however, excessive complexity resulting from being involved in both upstream and downstream coopetition results in diminishing performance. These original insights help understand the drivers of firm performance from a network perspective and provide a basis for further research.