The interaction between supply networks and internal networks: performance implications

Abstract

PurposeThe importance of the supply network to firm performance is well documented. Until now, the firm and its suppliers have been conceptualized as single entities. Yet, multinational corporations (MNCs) are composed of a complex, geographically dispersed internal network of subsidiaries. The supply and internal networks are inherently linked. The purpose of this study is to investigate the impact of the interaction of these networks on firm-level financial performance.Design/methodology/approachBuilding on supply network, internal network and dual embeddedness research, the authors investigate the interaction of these networks using supply network data from FactSet and internal network data from Orbis. We assess the impact at the MNC level, using measures of firm-level financial performance, physical proximity between the two networks and geographic dispersion of the internal network.FindingsThe results show that the performance effect of physical proximity of the firm with its supply network is negatively moderated by the geographic dispersion of the firm's internal network. This effect can be traced back to the diminishing marginal profitability of a firm's assets. Moreover, the benefits of dual embeddedness to the individual subsidiary come at a cost at the firm-level due to the operational challenges of managing a complex subsidiary network.Research limitations/implicationsThis study is the first to investigate the supply and internal networks of MNCs simultaneously.Originality/valueThe paper extends supply network literature by considering the internal network of the focal firm and its suppliers. This paper is one of the first studies that offer an understanding of the interaction between supply and internal networks of a focal firm and the effect on financial performance.