When the chickens come home to roost: The short- versus long-term performance implications of government contracting and supplier network structure

Abstract

The old adage “it is not what you know, but who you know” suggests that in connection(s) lies the key(s) to success. But what does success mean, and for how long will it last? What does the choice of partner, and network connections say about the performance implications of contracting, particularly in the case of a public–private partnership? With countries such as the United States accounting for the world's largest buyer (of any and everything), several suppliers eagerly await their opportunity to contract with large government entities, but is it always a wise decision? Such questions remain largely unexplored and require answers. This research provides answers to these questions by integrating congruence, and network theory to investigate how government contracting impacts private suppliers' financial performance and how suppliers' supply chain network connections moderate this relationship. Results using panel data over several years suggest that while contracting with government bolsters' short-term financial performance (ROA), it negatively affects long-term supplier performance (Tobin's Q). In addition, the prominence of a firm's connections (i.e., who they know) and the composition of these connections enhances the performance gains, highlighting the critical role of a firm's network structure on their performance within the contracting relationship. We therefore find that the power of supply chain network connections enhances the short-term positive effects and mitigates the long-term adverse effects when contracting with government buyers, as the relationship is not always universally positive.