Distributors' customer-driving capability under supplier encroachment

Abstract Suppliers in business-to-business (B2B) markets often directly approach end customers in addition to using third-party distribution channels. This phenomenon, known as supplier encroachment, poses an increasing challenge to the distributor's profitability in the supply chain. However, little research has adopted the distributor's perspective to examine how it can overcome this challenge. This study addresses this gap by adopting the dynamic capability and network embeddedness theory to postulate the critical role of the distributors' customer-driving capability in tackling encroachment. Using survey data from 125 distributor firms in the semiconductor industry, we show that distributors' customer-driving capability significantly improves firm performance and that the impact strengthens when supplier encroachment is high. Moreover, we delineate the positive impacts of supplier relationship exploration, distributor relational embeddedness, and customer service excellence on distributors' customer-driving capability. Interestingly, supplier encroachment weakens the effects of supplier relationship exploration and customer service excellence but strengthens that of distributor relational embeddedness, indicating the importance of leveraging peer relationships under high supplier encroachment.