Supplier innovation value from a buyer–supplier structural equivalence view: Evidence from the PACE awards in the automotive industry

• Author: Sangho Chae,Yang Yang,Tingting Yan
• Date: 01 October 2020
• DOI: http://doi.org/10.1002/joom.1063
• Published date: 01 October 2020

RESEARCH ARTICLE

Supplier innovation value from a buyer–supplier structural

equivalence view: Evidence from the PACE awards in the

automotive industry

Sangho Chae

1

| Tingting Yan

2

| Yang Yang

3

1

Department of Management, College of

Business Administration, Marquette

University, Milwaukee, Wisconsin

2

Department of Marketing & Supply Chain

Management, Mike Ilitch School of

Business, Wayne State University, Detroit,

Michigan

3

Department of Marketing and Management,

College of Business Administration, The

University of Texas at El Paso, El Paso,

Texas

Correspondence

Sangho Chae, Department of Management,

College of Business Administration,

Marquette University, 1225 W Wisconsin

Ave, Milwaukee, WI 53233.

Email: sangho.chae@marquette.edu

Handling Editors: Subodha Kumar, Sriram

Narayanan, and Fabrizio Salvador

Abstract

With the growing demand for smarter, cleaner, and safer cars, automotive original

equipment manufacturers (OEMs) are increasingly seeking novel inventions from

innovative new or foreign suppliers. However, not all innovative suppliers are

equally valuable for an OEM. When transforming novel inventions into products,

OEMs could find it challenging to work with the suppliers with whom they lack

trust or have limited shared understanding. In this study, we adopt a social capital

perspective to understand how three types of social capital (i.e., structural, rela-

tional, and cognitive) influence a supplier's innovation value to the OEM. Hypothe-

ses are tested using a unique data set combining the supply network structure and

automotive supplier innovation award. Our results suggest that it is more difficult

to obtain innovation value from a new or culturally distant foreign supplier. How-

ever, we also found that suppliers whose networks overlap more with the OEM's

network are more likely to provide valuable innovations to the OEM, an effect that

is stronger for culturally distant suppliers. This study contributes to the supply net-

work and innovation literature by highlighting the importance of understanding the

dyadic social capital between the buyer and supplier when evaluating innovation

value of a supplier to a buying firm.

KEYWORDS

automotive industry, network, social capital, structural equivalence, supplier innovation value

1|INTRODUCTION

With the growing demand for smarter, cleaner, and safer

vehicles, automotive original equipment manufacturers (auto

OEMs) are seeking inventions from suppliers (Wilhelm &

Dolfsma, 2018; Yan, Dooley, & Choi, 2015). The automo-

tive industry today is a part of an open, self-organizing eco-

system where cooperation among emerging players and

innovation partners from converging industries is becoming

more critical (KPMG, 2018). Many nontraditional suppliers,

such as Flex, Google, and Nvidia, who do not primarily

serve the automotive industry, are attempting to provide new

technologies to auto OEMs. Consolidations among tradi-

tional automotive suppliers are pushing auto OEMs to work

with newly formed mega-suppliers (Automotive News,

2013). At the same time, due to the globally distributed

nature of innovation resources, auto OEMs are increasingly

working with suppliers from culturally distant foreign coun-

tries (Chappell, 2018).

Despite auto OEMs' need to obtain novel inventions from

new or foreign suppliers, establishing relationships with

them and further developing novel ideas into a commercial

success can be challenging. Short OEM–supplier relation-

ships with new suppliers create challenges for building

Received: 1 September 2018 Revised: 14 September 2019 Accepted: 18 September 2019

DOI: 10.1002/joom.1063

820 © 2019 Association for Supply Chain Management, Inc. J Oper Manag. 2020;66:820–838.wileyonlinelibrary.com/journal/joom

reciprocity, trust, knowledge sharing routines, and

relationship-specific investments (Autry & Golicic, 2010),

while differences in auto OEM-supplier country origins

could limit the extent of shared language and common

values (Ribbink & Grimm, 2014). The lack of such rela-

tional and cognitive resources makes it difficult for auto

OEMs to fully access innovation value from new or foreign

suppliers.

Furthermore, an OEM–supplier dyad is always embedded

within a broader network that consists of customers and sup-

pliers of both the buying firm and supplier (Choi & Kim,

2008). The relative structures of how these companies are

embedded in the industrial network greatly impact their eco-

nomic actions (Granovetter, 1985). Likewise, the supplier's

network position, as compared to the buying firm's network

position, could affect the extent to which supplier innova-

tions benefit a buying firm because different positions pro-

vide access to different innovation resources in the supplier's

network (Autry & Griffis, 2008; Bellamy, Ghosh, & Hora,

2014). In other words, a supplier's relative network position

could affect supplier innovation value, defined as the extent

to which a supplier could help a buying firm create commer-

cially successful innovations (Yan, Yang, & Dooley, 2017).

Especially when relational or cognitive resources are lacking

in an OEM–supplier dyad, the supplier's relative network

position might play a critical role in enhancing supplier

innovation value (Rost, 2011; Tsai & Ghoshal, 1998).

Adopting a social capital view (Nahapiet & Ghoshal,

1998), our study aims to bring novel managerial insights

regarding one question: “Among all the innovative suppliers,

which one is most valuable for me?”We challenge the

assumption that all suppliers that are innovative can provide

valuable innovation to the buyer. We explore these consider-

ations and study how the social capital between an auto

OEM and a supplier affects the supplier's innovation value

to the OEM. All three dimensions of social capital—namely

structural, relational, and cognitive—are considered in this

study. We operationalize the structural dimension of a sup-

plier's social capital with OEM–supplier structural equiva-

lence, which is defined as the extent to which two firms are

connected similarly to a common set of firms in an interfirm

network (Lorrain & White, 1971). In addition, we capture

the relational dimension of the supplier's social capital using

buyer–supplier relationship tenure (i.e., length of the rela-

tionship) (Kotabe, Martin, & Domoto, 2003) and the cogni-

tive dimension of the supplier's social capital using the

national cultural distance (Xu & Shenkar, 2002).

Assuming not all innovative suppliers could bring inno-

vation value to a buying firm, we aim to answer the follow-

ing research questions: Among innovative suppliers, (a) how

do buyer–supplier structural equivalence, relationship ten-

ure, and national cultural distance affect supplier

innovation value, and (b) how does buyer–supplier struc-

tural equivalence affect supplier innovation value under dif-

ferent levels of relationship tenure and national cultural

distance? To answer these questions, we analyze a unique

data set that draws from three independent sources: Automo-

tive News' Premier Automotive Suppliers' Contribution to

Excellence (PACE) Awards, FactSet supply chain relation-

ship data, and Compustat Fundamentals Annual.

This research contributes to the literature in the following

ways. First, our proposition of supplier innovation value

(a dyad-level outcome) contributes to the supplier innovation

literature that mostly focuses on supplier innovation perfor-

mance at the firm level. However, innovative suppliers may

not necessarily share their innovation with the buyer either

due to a low level of supplier motivation or a mismatch

between supplier innovation and buyer needs. Our study dis-

tinguishes a supplier with valuable innovations to a buying

firm (e.g., an award-winning supplier innovation adopted by

an OEM) from an innovative supplier in general (e.g., a firm

with high patenting intensity). Second, we contribute to the

supply network literature by studying the performance impli-

cations of structural equivalence, a dyad-level supplier net-

work position measure. In particular, we highlight the

importance of considering a supplier's network position in

conjunction with a buying firm's network position in an

innovation context, while previous studies primarily focused

on the supplier's network position measures at the firm level

(e.g., Bellamy et al., 2014; Carnovale & Yeniyurt, 2015).

Finally, we contribute to the social capital literature in the

supply chain context (e.g., Carey, Lawson, & Krause, 2011;

Lawson, Tyler, & Cousins, 2008; Villena, Revilla, & Choi,

2011) by examining how the relational and cognitive capital

moderate the influences of structural capital on supplier

innovation value.

2|LITERATURE REVIEW

Given the current trend of buying firms relying on suppliers

for creative solutions (Narasimhan & Narayanan, 2013), the

recent literature has investigated whether supplier involve-

ment adds value to buying firm innovation (Schiele, 2006;

Smals & Smits, 2012; Tracey & Neuhaus, 2013; Wagner,

2003) and which suppliers could provide such value

(Wagner, 2010; Yan et al., 2017). These studies indicate that

a supplier innovation has to be both novel and relevant to be

valuable for a buying firm (Im & Workman Jr, 2004; Mahr,

Lievens, & Blazevic, 2014). This is consistent with the view

that value is always determined by the beneficiary (Im,

Montoya, & Workman Jr, 2013; Vargo & Lusch, 2008).

Novelty refers to the newness of technologies or solutions in

a supplier innovation that adds value to a buying firm (Von

Hippel, 2005). Relevance refers to the extent to which an

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