Tie versus tie: When do corporate development activities strengthen or disrupt buyer-supplier ties?

Abstract

In this paper, we explore the effect of a firm's corporate development activity history on its propensity to maintain long-term buyer-supplier relations. More precisely, we examine various forms of corporate development, i.e. alliance, equity joint ventures and acquisitions, and explore how experience with these activities differentially affects the likelihood of tie dissolution. We argue that corporate development activities will provide opportunities for learning resulting from experience spillovers, but also bring about considerable disruptions. Taking both these arguments into account, we postulate a U-shaped relationship between a firm's CDA experience and the likelihood of its ties ending in a given year. We find support for our proposed curvilinear relationship between CDA experience and likelihood of tie dissolution in a sample of 273 advertising agency-client ties. We also hypothesize and find empirically that the effects of different types of experience are not uniform. We examine differences between acquisitions, joint ventures and other alliances and between horizontal and vertical CDA effects. We thus show that not all types of experience provide the same learning opportunities and disruptive potential for buyer-supplier ties. Although learning spillovers occur, we find limits to the benefits of experience as well as evidence of learning asymmetries.