The dark side of customer-specific innovation: Patent similarity and supplier labor investment efficiency

Abstract

We examine how patent similarity with customers influences supplier firms' labor investment efficiency. Our findings show that higher patent similarity with customers negatively affects suppliers' labor investment efficiency, suggesting that more relationship-specific investments reduce suppliers' flexibility in adjusting labor capital. While shared technological profiles enhance knowledge transfer and collaboration, they also tie suppliers more closely to customer needs, limiting their ability to make efficient labor investment decisions. These effects are more pronounced in supplier firms with higher levels of innovation, a greater reliance on skilled labor, and customers who have more bargaining power. Further analyses reveal that the negative impact stems primarily from suppliers' underfiring, indicating a failure to address redundancy issues. This study contributes to the supply chain literature by introducing the novel perspective of supplier-customer patent similarity and adds to studies on the determinants of labor investment efficiency by incorporating the role of customers into the framework.