The effect of multiple sourcing and bilateral dependency on buyer control in industrial buyer-seller relationships

Abstract

Single and multiple sourcing represent different strategies for organising buyer-seller relationships. This paper explores the effect of sourcing strategy and employment of specific assets on buyer influence (buyer control) in supplier-manufacturer relationships. The research design is based on primary data from 159 industrial buyer-seller relationships and maps a broad set of economic and organisational dimensions in business-to-business relationships. The empirical analysis supports the proposed research hypotheses, and demonstrates that when the supplier firm is a sole supplier of a specific product, there is a strong and positive association between asset specificity and buyer control due to the prospect of opportunism and subsequent need for safeguarding. This effect is significantly diminished when the manufacturing firms use multiple sourcing, and indicates that a multiple sourcing strategy attenuates the problem of information asymmetry and the perceived performance ambiguity, and hence acts as a supportive safeguarding mechanism that mitigates possible opportunism and the subsequent need for formalised monitoring and buyer control.