Differing Impacts of Price Pressure and Innovation Pressure: An Abstract

Abstract

Innovation capability is widely viewed as a competitive advantage. Yet literature on innovation and new product development have also recognized the existence of hurdles in the successful practice and implementation of innovation within the supply chain. In an uncertain and highly competitive business environment, it is not uncommon for organizations to pass on innovation tasks to supply chain partners. This is particularly so in the case of the manufacturing supply chain in which powerful Original Equipment Manufacturers (OEMs) often pass on innovation introduction activities to their suppliers. This research seeks to determine whether such “Innovation Pressure” is conducive to good Supplier – OEM Relationships and also how it compares with price pressure exerted similarly by OEMs. A research model is developed with overall supplier-OEM relationship as the final dependent variable. In addition to a set of intermediate relationship variables (Communication, Buyer Help, positive and negative aspects of Working Together, and Profit Partnership), the model has two exogenous variables – one representing price pressure and the other representing pressure to innovate. After following a detailed scale development procedure, data were collected through a survey from North American, Europeans, and Asian suppliers in the electronics industry and the automotive heavy vehicles industry. Statistical analysis using structural equation modeling (LISREL) and oblique centroid multiple group factor analysis shows differences in the impacts of the two initial variables on the outcome variable. Innovation pressure has substantially more positive links with the intermediate relational variables as well as the dependent variable than price pressure has. However, the researchers note that that the hurdles reflected by the negative links are not unsurmountable as they provide cues for managerial action. Appropriate and timely managerial decision-making can counter the tendency among suppliers to view OEM pressure as being hostile and encourage the formation and maintenance of good B2B supplier-customer relationship.