Relationships between high-tech SME suppliers and foreign buyers: effects of relational trust, relationship-specific investments and contract specificity on product innovation

Purpose

Referring to transaction costs theory, resource based view and social exchange theory, this paper examines the interplay between selected dimensions of suppliers’ relationships with foreign buyers, specifically relational trust, contract specificity and relationship-specific investments, as well as analyzes the effects those dimensions have on the suppliers’ product innovation.

Design/methodology/approach

This study uses survey data from 179 small- and medium-sized Polish manufacturing suppliers of high-tech products. Information was collected on dyadic relationships with their key foreign buyers and used as an input to a structural model consisting of multiple linear regressions.

Findings

It was discovered that trust and investments have a mutual positive impact on each other and individually contribute to the supplier’s product innovation. However, once both trust and investments were included in the model, only the latter showed significant effect. Contracts, on the other hand, showed different impact on innovation depending on how it was measured.

Practical implications

Managers should treat trust only as a mechanism to create supportive environment for investments, which exclusively have the power to improve supplier’s product innovation. Contracts’ role, in turn, should be limited to facilitating business relationships.

Originality/value

Only single quantitative studies analyzed trust, investments and contracts as determinants of supplier’s product innovation. Also, focus was not placed on high-tech SMEs in relationships with foreign buyers. As a result, our study provides unique insights on such relationships and unveils new details on an indirect link between trust and product innovation.