The effect of supplier globalization on firm innovation : a resource dependence theory perspective

Purpose: Either buying or making is predicted by the existing literature for firms to reduce dependence. However, firms in the rapid globalization are found to adopt a pattern of buying and making. Specially, they critically rely on foreign firms for needed materials and goods, and invest in innovation against the uncertainty of potential supply disruptions simultaneously. Therefore, this paper seeks to investigate how the depth and width of supplier globalization shape firm innovation together. Moreover, the moderating effects of institutional distance and market competition are also examined in the paper. Design/methodology/approach: Grounded on the resource dependence theory, this paper develops a theoretical framework and tests the proposed hypotheses by Poisson model using secondary data from 502 Chinese listed firms with foreign suppliers. Findings: The depth of supplier globalization has a positive impact on firm innovation, while the width of supplier globalization weakens firm innovation. The depth and width of supplier globalization further interact negatively to influence firm innovation. Moreover, this relationship is enhanced when firms establish relationships with foreign firms with greater institutional distance and is weakened when firms face fiercer product competition. Originality/value: The authors contribute to the literature by evidencing that the existence of foreign suppliers results in firms' enhancement of innovation to secure their operations and showing that diversifying the country origins of foreign suppliers is an effective means to reduce firms' uncertainty about supply disruption. We also advance the understanding regarding the contextual factors in which firms are more likely or less likely to manage the uncertainty about supplier globalization.