The role of technical and relational capabilities in the selection of suppliers for technically innovative components in the United States and Japan

Firms often improve their product by incorporating innovative components. For example, a laptop computer manufacturer can incorporate a larger display than currently exists. Since the component does not yet exist in the desired form, the buyer cannot buy it “off the shelf”. Rather, developing the component requires a period of intense interaction between buyer and supplier. Thus, selecting the right supplier—possibly an internal supplier—is an important strategic decision. The evolutionary view of strategy suggests a focus on the technical capabilities of potential suppliers, while sociological research focuses on the value of the relational capabilities between buyer and supplier. This leads to an important theoretical and managerial question—what determines the relative importance of technical and relational capabilities in component souring decisions?; To answer this question, I extend the standard transaction costs economics model. I view the relative importance of technical and relational capabilities as a function of the innovative component's technical uncertainty. My core proposition is that the greater the technical uncertainty, the greater the value of relational capabilities relative to technical capabilities. Sources of relational capabilities include prior transactions and the buyer and supplier belonging to the same company. I test six hypotheses using the choice of display suppliers by notebook computer manufacturers from 1992–1998. I combine quantitative results from a multinomial logit model of supplier selection with qualitative data from interviews. The findings support the core proposition, with some intriguing caveats.; I also use the model to explore the effects of the Japanese institutional environment. My findings suggest that Japanese buyer-supplier relationships respond to institutional constraints that increase the difficulty of transacting with unrelated suppliers.; This dissertation extends our understanding of how firms resolve the trade-offs involved in choosing a supplier. It extends the TCE model by explicitly incorporating firm heterogeneity and applying the model to supplier choice. It extends work primarily in social network analysis that focuses on inter-firm relationships by considering the relative importance of relationships and of the parties involved in those relationships. Also, the research provides a unified means of considering the value of both external and internal links to a company.