Investigating the impact of firm embeddedness in a complex upstream supply network

Inter-organizational network literature has confirmed that relational capital exists in a network of informal, horizontal inter-firm relations, i.e. a decentralized network structure. However, the upstream supply network is structurally different from the decentralized network. The upstream supply network is a centralized network structure. Transactions and activities in the upstream supply network are often administered and managed by a centralized manufacturing firm through formal inter-firm relations such as contractual requirements. In such conditions, the interactions of the firms that are embedded in the upstream supply network may or may not alter the implication of relational capital upon the embedded firms. Thus, this study examines the implication of firm embeddedness in the centralized upstream supply network on firms’ relational capital outcomes. This research is significant as it adopted a different perspective of the upstream supply network as a centralized network structure rather than a decentralized network structure. Accordingly, it provides a micro investigation into the structural aspects of the upstream network implications. Consequently, this research would contribute to limited research in the field of centralized network study as well as to the context of operation and supply chain management. <br><br>Through the application of Social Network Analysis (SNA) methodology, as well as two modes of network data analyses (i.e. the exploratory network analysis and the exponential random graph (p*) model on network data of N=37 firms), results revealed two important findings in the context of the centralized upstream supply network structure. Most importantly, this research found that firm embeddedness in the centralized upstream supply network has an impact on two items of relational capital outcomes, specifically: firms’ level of trust and the level of influence. In addition to that, this study also found that firms’ embeddedness in the centralized upstream supply network structure is influenced by the type of inter-firm relation coordination mechanism. Firms in the centralized upstream supply network were found to be more embedded or involved in informal inter-firm relations than in formal inter-firm relations. <br><br>The findings of this research have had a significant impact upon the body of knowledge and managerial contributions. Theoretically, this researcher contributed to the relational capital literature by testing and confirming the argument that relational capital does exist in a centralized network structure. In addition, this study also contributed to the inter-firm network literature as it confirmed that a firm’s embeddedness in formal and informal networks of inter-firm relations affects its relational capital outcomes. Third, this study found that formal commercial transaction and the web of informal social exchanges complement instead of substitute each other. Managerially, the findings of the Exponentinal Random Graph Modeling (ERGM) specifically highlights and warns managers against the application of a reductionist approach to the issues of inter-firm relations complexity in the supply chain, as this may result in removing firms that are highly connected to more innovative or resourceful firms in the network, but not visible through good accounting measures. Managers are advised to adopt the embeddedness findings in this thesis to complement existing strategies of supplier management.<br>