Mitigating the damage of a global pandemic on the international buyer-supplier relationship: Evidence from Chinese suppliers

Abstract

The coronavirus disease 2019 (COVID-19) pandemic severely damaged the global supply chain, resulting in markdowns across the global economy. A growing body of research has explored the influence of this global pandemic on firm strategy and performance. However, despite the substantial impact of the pandemic on the global supply chain, no empirical studies have examined its impact on buyer–supplier relationships. Building on the literature on transaction cost economics (TCE) and interfirm governance, this study examines the effects of COVID-19 pandemic severity on interfirm conflict and opportunism in international exchange relationships, as well as the role of contractual and relational governance in shaping these effects. Based on data from a two-period survey of manufacturing firms in China and their foreign buyers with archival data, our findings reveal that pandemic severity increases interfirm conflict and buyers’ opportunism in international exchanges. Moreover, contractual governance aggravates the detrimental effect of pandemic severity on buyers’ opportunism, while relational governance weakens the detrimental effect of pandemic severity on interfirm conflict. When contractual and relational governance are implemented jointly, they can weaken the detrimental effect of pandemic severity on buyers’ opportunism.