Asymmetrical Power Relationships in Supply Chain Networks

Abstract

Global supply chains have become increasingly complex and a critical source of competitive advantage, which makes the understanding of how supply chains create and distribute value an essential task. Prior literature on concentration risks has primarily focused on customer concentration and has overlooked the challenges posed by the major upstream supply chain partners. In addition, CEOs with an optimal mix of technical and behavioral abilities can shape the strategic decision-making process to obtain an advantage against the nonfinancial stakeholders. The existing literature has also overlooked the significant role of the CEO in reducing the impact of supplier-base/customer-base concentrations. Utilizing objective supply chain relation data collected from Bloomberg SPLC and Compustat, we map the supplier base and the customer base for each electronic and chemical manufacturing firm publicly listed under S&P1500 for the fiscal year 2017. We then construct objective measures of supplier and customer concentrations and examine their impacts on the focal firm's financial performance measured by Tobin's Q, gross profit margin, and net profit margin. The performance metrics also include the focal firm's payable period (against the supplier-base) and receivable period (against the customer-base). We also collect information related to the CEOs appointed by the focal manufacturing firm, such as gender, age, and tenure from Execucomp, and consequently investigate their impacts on the supplier concentration and the customer concentration. Our empirical analysis shows contradictory results in the context of supplier-base/customer-base concentrations: higher supplier-base concentration is observed to harm the focal firm’s financial performance, but higher customer-base concentration leads to an increase in the focal firm’s profitability. Although CEO characteristics such as tenure and age did not have any notable impact, female CEOs are found to reduce the adversarial impact of supplier-base concentration and are assumed to exercise a voluntary power restraint against the cooperative customer-base.