Reciprocity between buyer cost sharing and supplier technology sharing

Abstract

Despite the increasing importance of integrating suppliers into buyer product development activities, the majority of the research on supplier integration focuses on total cost reduction and benefits to the buyer rather than cost sharing between a buyer and its suppliers. Total cost reduction does not necessarily imply buyers share cost savings with suppliers, especially when buyers have a power advantage over suppliers. Also, little empirical evidence exists on what impact buyer cost-sharing has on supplier technology innovations. This paper examines the reciprocal relationships between buyer cost sharing and supplier willingness to share and invest in new technology using two-year of data collected from Tier-1 suppliers in the North American automotive industry. Initial buyer cost sharing was found to stimulate supplier sharing one year later and does so more effectively than supplier involvement in the buyer׳s product development activities. Moreover, supplier sharing was found to be reciprocated by the buyers. Furthermore, Japanese OEMs in the North American automotive industry reciprocate supplier sharing with higher levels of cost sharing than do domestic OEMs. The research substantiates buyer cost sharing as an important strategy to generate competitive advantage in managing supplier relations.