Relationship Governance in a Supply Chain Network

Abstract

The authors examine how a firm's strategy in a (downstream) customer relationship is contingent on how a related relationship outside of the focal dyad is organized. Drawing on emerging perspectives on interfirm governance and networks, the authors propose that the ability to show flexibility toward a (downstream) customer under uncertain market conditions depends on the governance mechanisms that have been deployed in an (upstream) supplier relationship. The governance mechanisms take the form of (1) supplier qualification programs and (2) incentive structures based on hostages. The authors develop a set of contingency predictions and test them empirically in the context of vertical supply chain networks in the apparel industry. The tests show good support for the hypotheses. The authors discuss the implications of the findings for marketing theory and practice.