Social Embeddedness and Supply Chains: Doing Business with Friends vs. Making Friends in Business

Abstract

Network literature has widely documented that the managerial ties between corporate leaders in two firms can promote their economic exchanges in supply chains, i.e., social embeddedness. In this study, we strive to advance this line of inquiry by exploring the dynamics of such socially embedded supply chains, examining whether and when the dissolution of managerial ties between two firms would cause the subsequent termi- nation of their supplier-buyer exchanges. We address this question by distinguishing two types of socially embedded supply chains based on their different relational origins: business-with-friend links in which the managerial ties precede the supply chains, and friend-in-business links in which the supplier-buyer exchanges precede the managerial ties. We posit that the managerial tie dissolution has a negligible effect on the subse- quent termination of supply chains in business-with-friend links. In contrast, in friend-in-business links, the dissolution of managerial ties between two firms is associated with a significantly higher likelihood for their supplier-buyer exchanges to dissolve afterward. We find strong empirical evidence for the above propositions using a nuanced dataset that integrates the managerial tie information and the supply chain data. In sum, we show that socially embedded supply chains with different origins (“doing business with friends” versus “making friends in business”) would have distinct patterns of evolution and dissolution.

Keywords: Supply Chain Dynamics, Relationship Dissolution, Managerial Tie, Social Embeddedness

JEL Classification: D82, D86, G30, G34, L14