Treat your suppliers right! Aligning strategic innovation orientation in captive supplier relationships with relational and transactional governance mechanisms

Abstract

Buyer‐supplier relationships are regarded as a source of competitive advantage, as suppliers can contribute valuable but imperfectly tradable resources. To coordinate these resources in the course of joint value creation and mitigate the risks of opportunism, buyers are required to establish transactional and relational governance mechanisms. While recent research showed that these mechanisms are intertwined with each other, little is known about the effects of different governance mechanisms in relationships with captive suppliers. Especially in case of captive suppliers, which are highly dependent on the buyer, the governance approach of the buyer affects the relationship and the supplier on a long‐term base. Based on unique data of 101 suppliers in the aviation industry, we show that transactional and relational governance mechanisms exert different effects on the efficiency and effectiveness of relationships with captive suppliers. While transactional governance is primarily suited to foster buyer‐supplier efficiency (e.g. cost or lead time reduction), relational governance strengthens buyer‐supplier effectiveness (e.g. product customization or joint innovation). Additionally, the choice of a governance mechanism indirectly affects the strategic innovation orientation of captive suppliers. Focusing on buyer‐supplier effectiveness stimulates strategic innovation orientation of captive suppliers; high buyer‐supplier efficiency leads to opposite effects. Our paper emphasizes that misalignment of governance mechanisms and the objective of buyer‐supplier relationships can limit strategic innovation orientation.