Learning by Supplying, Buyer Concentration, and Product Inventions

To explore the impact of supply chain product flows, finance flows, and information flows on supplier/buyer performance, the traditional supply chain management (SCM) literature primarily uses mathematical modeling frameworks. However, this paper instead studies knowledge flows empirically to explore their impact on supplier performance. Using a dataset that contains 10,124 supplier-year observations from the U.S. high-technology (high-tech) sector, we analyze suppliers’ patent citation records to measure knowledge flows and offer three key insights that extend the SCM literature. First, knowledge flows from buyers to suppliers (i.e., knowledge inflows) enhance supplier profitability by increasing innovation outputs. Second, although suppliers’ innovation outputs increase with both knowledge inflows from and outflows to buyers, there is a diminishing synergy when knowledge receiving and sharing are combined, due to common knowledge pools. Third, the relationship between innovation outputs and profitability is weaker when suppliers’ sales highly depend upon their major buyers’ contributions. As buyers can gain supply chain bargaining power from significant contributions to their suppliers’ sales, these powerful buyers can squeeze economic rents from innovation, thereby reducing suppliers’ profitability. As a result, suppliers are encouraged to act cautiously when using knowledge sharing to demonstrate their cooperative efforts towards buyers and are encouraged to diversify their respective buyer pools, so such suppliers may maintain their innovation and financial performance.