The dual effects of supplier stability on corporate innovation: A path dependence perspective

Abstract

Amid the escalating trend of trade protectionism, an increasing number of firms have been exposed to critical technological deficiencies following the disruption of their long-term supplier relationships. To explain this phenomenon, this paper explores the impact of supplier stability on corporate innovation from the perspective of path dependence theory. The findings suggest that while stable suppliers enhance a firm's innovative output, they also reduce its propensity for breakthrough innovations, leading firms to focus on incremental innovations and diminishing their motivation to engage in inventive ones. It is observed that deepening technological integration between firms and suppliers, as well as increasing asset specificity, may be key channels through which innovation path dependence is intensified. However, the evidence indicates that enhancing bargaining power and facilitating information exchange among supply chain partners can mitigate these adverse effects, thereby optimizing the innovation advantages of supplier stability. Firms are advised to exercise caution regarding excessive innovation path dependence when establishing stable supply chain relationships, as this could create vulnerabilities if supplier changes occur.