Sustaining Competitiveness and Profitability Under Asymmetric Dependence: Supplier–Buyer Relationships in the Korean Automotive Industry

Abstract

In this study, we examine the supplier–buyer relationship based on resource dependence theory. When suppliers are asymmetrically dependent on buyers because of the industry structure, the suppliers are subject to the opportunistic behaviors of the buyers. In this industry setting, suppliers have less opportunity to sustain their profitability. We theoretically and empirically examine the conditions under which suppliers may overcome such conditions. Suppliers’ enhanced commitment to the asymmetric relationship can help them resolve problems associated with asymmetric dependence and thereby sustain profitability. This effect can be lessened when a buyer forms a new exchange relationship or magnified when a supplier forms a new exchange relationship. Suppliers’ industrial diversification and technological capability also affect the dynamics. We collected data from Korean auto parts suppliers between 1998 and 2007. Using the feasible generalized least squares regression model, most of our hypotheses were supported, except for the moderating effect of technological capability. These empirical results are also confirmed by random-effects model and fixed-effects model panel regressions. This study makes three distinctive contributions to the current research, suggesting the enhancement of commitment (dependence) as a strategic solution under conditions of asymmetric dependence, applying a dynamic perspective to resource dependence theory, and emphasizing the role of firms’ capability in circumstances characterized by asymmetric dependence.