This study investigates whether proactive customer orientation and joint learning capability mediate social capital and relationship-based innovation in international customer–supplier relationships. We intended to offer an alternate explanation for the inconclusive and sometimes conflicting empirical results regarding the relationship between social capital and innovation in the literature. Using a supplier’s perspective and drawing on the RBV and capability building literature, the results provide strong evidence for the essential role of proactive customer orientation and joint learning capability as distinctive capabilities in transforming the potential benefits of social capital into value creation for radical innovation generation in global supply chain relationships. Furthermore, we explore the moderating effects of supplier design responsibility and supplier dependence on the innovation–generation
processes. The results show that supplier design responsibility and supplier dependence have a complex moderated mediated effect on the proactive customer orientation-innovation link. This study broadens and deepens our understanding of how and through what mechanisms social capital can lead to relationship-based radical innovation by suppliers in international
customer–supplier relationships. We discuss the implications of the results of this study as follows.
Role of proactive customer orientation and joint learning capability
This study shows that both proactive customer orientation and joint learning capability mediate the relationship between social capital and radical innovations. Furthermore, proactive customer orientation significantly intervenes the social capital–innovation link only under the
conditions of low supplier dependence or high supplier design responsibility. The results indicate that proactive customer orientation is a context-specific capability, which may be shaped by a different organizational characteristics and organizational structure. The results are noteworthy, and provide new evidence of alternative paths to the way social capital can contribute to innovation. This is consistent with the recent findings on the contingent effect of proactive customer orientation on innovation (Atuahene-Gima, Slater, and Olson 2005).
In contrast, the findings also demonstrate that joint learning capability can fully mediate the effect of social capital on relationship-based radical innovation in customer–supplier
relationships. We provide empirical evidence of the link between social capital, joint learning and innovation, a vital but underexplored issue in the literature (Easterby-Smith, Lyles, and Tsang 2008). Joint learning has been associated with different performance outcomes, such as market performance and relationship value in the literature (Cheung, Myers, and Mentzer 2010;
Jean, Sinkovics, and Kim 2010). However, this study extends our understanding of these links by drawing joint relationship learning into the social capital–innovation link. Furthermore, this result demonstrates that supplier design responsibility and supplier dependence do not moderate the mediating effect of joint learning in the social capital–innovation link. The results suggest that joint learning capability is a critical organizational capability that has the same effect on leveraging the potential of social capital on relationship-based radical innovation generation, regardless of the nature and strength of the suppliers tie to the customer. Joint learning mediates the social capital-innovation link, regardless of supplier dependence structures and supplier strategic orientations for design responsibility. Therefore, joint learning capability is shown to be a fundamental process underlying relationship-based innovation, unaffected by key contextual aspects of tie strength in the global supply chain.
Overall, the findings on the mediating effects of different organizational capabilities on
the link between social capital and innovation lend support to the RBV (Barney 1991) and capabilities building perspective of rent generation literature (Lu et al. 2010; Teece, Pisano, and Shuen 1997), which suggests that firm distinctive capabilities including proactive customer orientation and joint learning capability can act as a translator to transform the potential of social capital into radical innovation in global supply chains.
Role of supplier dependence and supplier design responsibility
Our findings reveal complexity in the social capital-innovation link that may help address the equivocal nature of the extant empirical literature on this topic. As noted, various conflicting studies have found that social capital is positively, negatively, and not related to innovative new products (Tsai 2001; Yli-Renko, Autio, and Sapienza 2001; Zheng 2010). Our research accommodates such mixed findings by recognizing a key mediating capability, a supplier’s proactive customer orientation, functions in the context of certain supply chain conditions, specifically when a supplier has design responsibility or is less dependent on the key customer. In these contexts, a supplier has the creative capability and diversity of knowledge to exploit the discovery of latent needs associated with a proactive customer orientation, facilitating the development of relationship-based innovations in global supply chains. When the nature and strength of a supplier’s tie to its key customer are different, the unsupportive supply chain context weakens the capacity to innovate from discovered needs, breaking the social capital innovation-link and potentially accounting for equivocal empirical findings.
Dependence structure has an important role in managing supply chain relationships, and can shape firms’ control of the strategic resources necessary to generate innovative activities.
Despite the presumed impact of dependence on innovation generation and performance in the customer–supplier relationship (Tangpong, Michalisin, and Melcher 2008), the literature does not closely examine these links. Our results demonstrate the moderating role of supplier dependence
on the innovation generation process in supply chain relationships. We find that a less dependent supplier may leverage more information and knowledge resources that are generated from a proactive customer’s proactive orientation, which can create relationship-based radical
innovation. Less dependent suppliers are more autonomous from a key customer, with a broader pool of customers and exposed to a wider and deeper stock of knowledge, facilitating the creative development of insights gained from latent needs. In contrast, a highly dependent supplier is tied to its dominant customer, focusing on a narrower and less diverse knowledge stock and less able to creatively develop and extend novel insights. These findings extend those of Tsai (2009) on the role of a network position within an intra-firm network to the
interorganizational context.
The results also show that supplier strategic orientation regarding supplier design responsibility may moderate the effect of proactive customer orientation on relationship-based innovation. This finding is consistent with recent arguments that supplier task responsibility may shape interorganizational learning and innovation generation (Azadegan and Dooley 2010). A supplier with a high design responsibility may effectively engage in more explorative tasks and be more likely to leverage information related to both addressed and unexpressed customer needs.
In this way, design responsibility provides the creative capability to suppliers to translate the discovery of latent needs with one customer into innovations that can be marketed to other customers. In contrast, suppliers, lacking design responsibility, and merely providing basic materials and components, are unable to utilize information about hidden needs and to apply insights for marketable innovations.
Managerial implications
This research offers further insights for practitioners. Specifically, the results of this study show that suppliers can employ social capital to generate innovation in the international
customer–supplier relationship. A supplier can develop a trustworthy, long-term, and
goal-congruent relationship with international cusomter, enabling the supplier to leverage social capital to discover hidden needs and create the knowledge necessary to develop radical
innovative new products, enhancing their competitive advantage in the global market.
That is, managers should be aware of the important roles of developing specific organizational capabilities to further leverage the potential of social capital in innovation generation processes. Specifically, suppliers should develop proactive customer orientation and joint learning capability to better transform and mobilize social capital to generate
relationship-based innovations.
Furthermore, managers must realize that dependence can shape innovation generation processes. High dependence on it key customer can create relationship stress and dependence, balancing, which can potentially impede a supplier’s flow of innovative ideas (Henke and Zhang 2010). A supplier with more autonomy and less dependence can access more diverse information and knowledge from its customers, which facilitates innovation generation. Our results may also have implications for managers of dominant customer firms, who should consider creating a collaborative environment to manage the vulnerabilities experienced by a highly dependent supplier, and create a trusting relationship that enables innovative activities to thrive within a supply chain relationship characterized by social capital. Furthermore, our results also provide evidence to managers regarding supplier design responsibility in innovation generation. Our results support that firms moving to an ODM business model can better leverage
relationship-based innovation benefits from their social capital in customer–supplier relationships.
On the other hand, the joint learning capability - relationship-based radical innovation link is not moderated by either ODM status or dependence level. This suggests that joint learning
capability is consistently affecting relationship-based radical innovation under different relational conditions. Managers are advised to take advantage of the benefits joint learning capability offers in inducing relationship-based innovation by cultivating inter-organizational environments that are conducive to organizational learning collectively with partners as a whole.