Supply chain relationship dependencies and circular economy performance: The contingency role of digitalization capability

Abstract

While prior literature suggests that firms can rely on suppliers and buyers for external resources to overcome constrained internal resource problems and thus fuel circular economy (CE) performance, scholars also argue that such dependency can lead to power imbalances, which will compromise operations. Drawing on resource dependence theory (RDT), we investigated how the degree of dependence of focal firms on suppliers and customers affects their CE performance. In addition, the study proposes digitization capability as a boundary condition for these relationships, given that the literature has repeatedly highlighted the critical role of digitization capability in supply chain relationship management. Employing hierarchical linear modeling on a panel dataset of listed Chinese manufacturers during 2010–2020, we found that the more dependent a firm is on its major suppliers and customers (the higher the supplier and customer concentrations), the worse its CE performance. In addition, we utilized data mining techniques to capture manufacturers' digitalization capabilities. We examined how digitalization empowers manufacturers to alleviate power imbalances in supply chain dependencies. Our results suggest that the manufacturers’ digitalization capability significantly weakens the negative impacts of supplier and customer concentrations on CE performance. Overall, this study contributes to the RDT and relationship management literature by highlighting the dark side of supplier and customer concentrations and introducing digitalization capability as a strategic response. These findings provide practical implications for managing the supplier and customer base in pursuing CE performance.