Governance and social capital formation in buyer-supplier relationships

Purpose - Building social capital within buyer-supplier relationships is often associated with high performing supply chains. However, little research has examined the mechanisms by which social capital is formed. The purpose of this paper is to examine the effects of relational and contractual governance mechanisms on the formation of social capital under varying levels of demand and supply uncertainty. Design/methodology/approach - A conceptual framework is developed, grounded in the literature on supply chain management and social capital theory (SCT). Findings - A series of propositions showed that relational governance leads to the formation of social capital under conditions of supply uncertainty, but is subject to opportunism when customer product demand is uncertain. By contrast, in conditions of high demand uncertainty, contractual governance is associated with social capital formation. Practical implications - The paper illustrates the need for managers to consider both the way in which their choice of governance mechanisms (contractual and relational) contributes to social capital, as well as highlighting the contingent nature of these mechanisms depending on the environmental context. Originality/value - This paper is a novel contribution, applying SCT to the literature on supply chain management.