Taking advantage of the fire: Does firm performance feedback have a supply chain contagion effect?

Abstract

The increased interconnection among supply chain participants brought about by globalization has made supply chain management more crucial than ever for gaining a competitive advantage. We examine how supply chain participants respond to feedback on firm performance, with a focus on the effect of contagion on bargaining power. When a company's performance is below expectations, suppliers and customers tend to increase their bargaining power and potentially take actions to safeguard their interests. This is attributed to the decline in the focal company's product market power, resulting from negative performance feedback. Contrarily, positive performance feedback does not cause significant changes in the bargaining power of supply chain firms. Moreover, we explore the role of other stakeholders, such as creditors and investors, in influencing supply chain negotiations. The distrust of other stakeholders leads to the further improvement of the bargaining power of supply chain companies. We analyze the motivation of supply chain stakeholders to improve their bargaining power under performance feedback and develop a complete causal chain and solution on how to enhance future performance prediction to lessen the increase in bargaining power of the supply chain. This paper is both a valuable contribution to the body of knowledge on the financial impacts of business stakeholder decision-making and a cautionary tale for companies that urgently need to cluster their supply chain activities.