Elsevier

Industrial Marketing Management

Volume 82, October 2019, Pages 27-37
Industrial Marketing Management

Buyer-supplier relational strength and buying firm's marketing capability: An outside-in perspective

https://doi.org/10.1016/j.indmarman.2019.03.009Get rights and content

Highlights

  • Extend the research focus of marketing capability literature from inside-out to outside-in perspective.

  • Indicate strong upstream buyer-supplier relationship is a necessity for building downstream buyers’ marketing capabilities.

  • Suggest supplier information sharing and supplier flexibility turn external relationship into internal capabilities.

Abstract

Extant literature in marketing capability with an inside-out perspective stresses existing internal resources as the basis for developing marketing capability. This study, taking an outside-in perspective, argues that starting from external environment and developing strong buyer-supplier relationship can help formulate strong marketing capability of the buying firm. Using survey data from 199 Chinese manufacturing buyers who identified 937 suppliers, we found that strong buyer-supplier relationship can breed strong supplier information sharing and supplier flexibility, which fully mediate the effect of buyer-supplier relationship on buying firms' marketing capability. The findings provide support to the outside-in approach and reveal how external inter-firm relationship can be turned into intra-firm capability, and suggest that strong upstream buyer-supplier relationship can be a necessity for building downstream buyers' marketing capabilities. The findings also suggest an alternative strategy for developing marketing capabilities starting from external suppliers, and may help close the gap between marketing capability and dynamic external environment.

Introduction

Marketing capability has long been recognized as a crucial determinant for the superior performance of firms (Day, 2011; Dutta, Narasimhan, & Rajiv, 1999; Morgan, Vorhies, & Mason, 2009; Nath, Nachiappan, & Ramanathan, 2010). Marketing capability enables a firm to respond effectively to customer demands in a complex market (Day, 2011; Dutta et al., 1999; Mu, 2015). Based on the resource-based view or the dynamic capability theory, most extant studies emphasize that firms have to develop an idiosyncratic marketing capability to generate competitive advantage by effectively understanding and serving their customers (Greenley, Hooley, & Rudd, 2005; Krasnikov & Jayachandran, 2008; Salunke, Weerawardena, & Mccoll-Kennedy, 2011). These studies focus extensively on discussing internal firm resources and capability bundles that contribute to strong marketing capability (Akdeniz, Gonzalez-Padron, & Calantone, 2010; Dutta et al., 1999). The studies take an inside-out perspective, which begins with looking inside at the firm and then outwards from the vantage point of developing marketing strategies (Castro, 2015; Day, 2011). However, recent studies suggest that such an inside-out perspective can lead to myopia that focuses too much on internal resources and capabilities within the boundary of the firm and constrain explorative initiatives and the adaptive learning of firms (Day, 2011; Mu, 2015; Mu, Bao, Sekhon, Qi, & Love, 2018). In contrast, an outside-in approach, which begins from the external environment (Jaakkola, Möller, Parvinen, Evanschitzky, & Mühlbacher, 2010; Saeed, Yousafzai, Paladino, & Luca, 2015), empowers the management team to make sense of external changes and leverage resources outside the firm such that the firm is better able to adapt to external market changes and close the gap between internal marketing capabilities and market complexities (Day, 2011; Day & Moorman, 2010; Mu, 2015). However, we still do not know how the outside-in approach works to turn external factors into internal marketing capabilities.

Upstream suppliers are one of the crucial external stakeholders that shape a buying firm's perception of the external environment. Marketing capability that adaptively converts resources into functional outputs in response to market changes hinges not only on the understanding of downstream customer needs but also on upstream suppliers that determine how the firm deploys resources to satisfy market needs (Greenley et al., 2005; Nath et al., 2010). While many studies focus on customer side antecedents of formulating marketing capabilities (Duncan & Moriarty, 1998; Greenley et al., 2005; Webster Jr., 1992), what a firm learns from upstream suppliers and how to organize suppliers to provide flexible products or services are largely overlooked but can significantly affect whether a firm can understand and respond to market changes. We ask in this study whether and how upstream buyer-supplier relational strength can help enhance the buyer's marketing capability. Taking an outside-in perspective and based on relational theory, we argue that strong relationships with upstream suppliers can help develop downstream buyers' marketing capabilities by providing an increased level of supplier information sharing and supplier flexibility.

Our findings in this study contribute in the following three aspects. First, our study contributes to the marketing capability literature by extending the research focus from an inside-out to an outside-in perspective. Our findings suggest that strong inter-firm relationships with suppliers can turn into intra-firm marketing capability. While previous studies predominantly focused on internal antecedents of marketing capability (Akdeniz et al., 2010; O'Cass & Ngo, 2011; Trainor, Rapp, Beitelspacher, & Schillewaert, 2011), we reveal that an external inter-firm relationship can also contribute to strong marketing capability. Second, our findings suggest two mediating channels, supplier information sharing and supplier flexibility, that can explain how the outside-in approach works in turning outside relationships into inside capabilities. Supplier information sharing and supplier flexibility make it possible for buying firms to follow the sense-and-respond model based on external environment changes, thereby turning external relationships into internal capability. Third, this study also indicates that a strong upstream buyer-supplier relationship is a necessity for building downstream buyers' marketing capabilities. Previous research focused extensively on customer factors in shaping marketing capability (Cannon & Homburg, 2001; Mithas, Krishnan, & Fornell, 2005; Wathne, Biong, & Heide, 2001). Our findings suggest that the upstream relationship with suppliers determines how well the firm can flexibly adjust their input and adaptively learn from suppliers to effectively convert resources to meet downstream needs.

The remainder of this paper proceeds as follows. First, we develop the theory and hypotheses based on the outside-in perspective and relational theory regarding how the buyer-supplier relational strength affects buyer's marketing capabilities. Second, we elaborate our research method and discuss the main findings from the empirical models. Finally, we conclude with a discussion on the theoretical and managerial implications, as well as limitations and future research.

Section snippets

Marketing capability

Marketing capability has been defined as the integrative process that converts resources and market knowledge to explore customer needs and achieve great market performance (Day, 1994; Merrilees, Rundle-Thiele, & Lye, 2011; Nath et al., 2010; Shou, Chen, Zhu, & Yang, 2014; Vorhies and Morgan, 2003, Vorhies and Morgan, 2005; Yu, Ramanathan, & Nath, 2014). The resource-based view and dynamic capabilities theory are the most prominent theories in explaining what and how marketing capabilities

Sampling design and data collection

Chinese manufacturing industries have been chosen for this study as the research context. China has the largest and most dynamic market in the world (Gao, Xie, & Zhou, 2015; Liu et al., 2009). It has also experienced dynamic transitions during the last several decades with fast growth and speeding changes (Zhou et al., 2014). Meanwhile, inter-firm relationship plays a very important role in the Chinese business context. As a result, the Chinese market provides an ideal setting for this research.

Analyses and results

We used structural equation modeling to test the hypotheses in the study. LISREL 8.80 was applied to test the model. Table 3 shows the summary statistics of all key variables. Table 4 presents standardized results of the structure model.

In the structure model, the results show sufficient model fit (Chi-square (117) = 201.83, P = 0.0000, GFI = 0.90, CFI = 0.96, IFI = 0.96, RMSEA = 0.06). Hypotheses 1 and 2 suggest that there is a mediating effect of supplier information sharing between

Theoretical contributions

As Saeed et al. (2015) suggest that the outside-in perspective enables firms to achieve competitive advantages by anticipating market changes and developing responding strategies ahead of competitors, this research investigates the antecedents and mechanism of external relationships in shaping the marketing capability from the outside-in perspective. The findings show that buyer-supplier relational strength can enhance the buyer's marketing capability through two important mediators, supplier

Conclusions

Different from the inside-out perspective, which stresses internal resources as the basis for developing marketing capabilities, this study responds to the call for shifting the focus from internal to external dynamics and developing marketing capability from an outside-in perspective (Day, 2011; Saeed et al., 2015). We examined the effect of buyer-supplier relational strength on the buyer's marketing capability and found that developing strong buyer-supplier relationships are better for

Acknowledgment

The authors thank the anonymous reviewers for their valuable comments. Also, the authors are grateful to the support by the National Natural Science Foundation of China [NSFC 71572065].

References (131)

  • B.S. Ivens

    Flexibility in industrial service relationships: The construct, antecedents, and performance outcomes

    Industrial Marketing Management

    (2005)
  • M. Jaakkola et al.

    Strategic marketing and business performance: A study in three European ‘engineering countries’

    Industrial Marketing Management

    (2010)
  • D.A. Johnston et al.

    Effects of supplier trust on performance of cooperative supplier relationships

    Journal of Operations Management

    (2004)
  • A. La Rocca et al.

    Initial relationship development in new business ventures

    Industrial Marketing Management

    (2013)
  • B. Lawson et al.

    Antecedents and consequences of social capital on buyer performance improvement

    Journal of Operations Management

    (2008)
  • Y. Liu et al.

    Knowledge transfer in buyer-supplier relationships: The role of transactional and relational governance mechanisms

    Journal of Business Research

    (2017)
  • Y. Liu et al.

    Governing buyer-supplier relationships through transactional and relational mechanisms: Evidence from China

    Journal of Operations Management

    (2009)
  • Y. Luo

    Building trust in cross-cultural collaborations: Toward a contingency perspective

    Journal of Management

    (2002)
  • S.K. Mahapatra et al.

    Strategic interdependence, governance effectiveness and supplier performance: A dyadic case study investigation and theory development

    Journal of Operations Management

    (2010)
  • B. Merrilees et al.

    Marketing capabilities: Antecedents and implications for B2B SME performance

    Industrial Marketing Management

    (2011)
  • E.A. Mooi et al.

    Encouraging innovation in business relationships-a research note

    Journal of Business Research

    (2012)
  • J. Mu

    Marketing capability, organizational adaptation and new product development performance

    Industrial Marketing Management

    (2015)
  • J. Mu et al.

    Outside-in marketing capability and firm performance

    Industrial Marketing Management

    (2018)
  • J. Nahapiet et al.

    Social capital, intellectual capital, and the organizational advantage

  • P. Nath et al.

    The impact of marketing capability, operations capability and diversification strategy on performance: A resource-based view

    Industrial Marketing Management

    (2010)
  • A. O'Cass et al.

    Winning through innovation and marketing: Lessons from Australia and Vietnam

    Industrial Marketing Management

    (2011)
  • A. Paulraj et al.

    Inter-organizational communication as a relational competency: Antecedents and performance outcomes in collaborative buyer-supplier relationships

    Journal of Operations Management

    (2008)
  • S. Saeed et al.

    Inside-out and outside-in orientations: A meta-analysis of orientation's effects on innovation and firm performance

    Industrial Marketing Management

    (2015)
  • S. Salunke et al.

    Towards a model of dynamic capabilities in innovation-based competitive strategy: Insights from project-oriented service firms

    Industrial Marketing Management

    (2011)
  • J.C. Anderson et al.

    Structural equation modeling in practice : A review and recommended two-step approach

    Psychological Bulletin

    (1988)
  • U. Andersson et al.

    The strategic impact of external networks: Subsidiary performance and competence development in the multinational corporation

    Strategic Management Journal

    (2002)
  • F. Angulo-Ruiz et al.

    The financial contribution of customer-oriented marketing capability

    Journal of the Academy of Marketing Science

    (2014)
  • J.A. Aragón-Correa et al.

    A contingent resource-based view of proactive corporate environmental strategy

    Academy of Management Review

    (2003)
  • C. Argyris

    A life full of learning

    Organization Studies

    (2003)
  • J.P. Cannon et al.

    Buyer-supplier relationships and customer firm costs

    Journal of Marketing

    (2001)
  • M.D. Castro

    Knowledge management and innovation in knowledge-based and high-tech industrial markets: The role of openness and absorptive capacity

    Industrial Marketing Management

    (2015)
  • G. Challagalla et al.

    Marketing doctrine: A principles-based approach to guiding marketing decision making in firms

    Journal of Marketing

    (2014)
  • S.J. Chang et al.

    Spillovers and competition among foreign and local firms in China

    Strategic Management Journal

    (2008)
  • P.-Y. Chu et al.

    How to increase supplier flexibility through social mechanisms and influence strategies?

    Journal of Business & Industrial Marketing

    (2012)
  • D.P. Claro et al.

    Collaborative buyer–supplier relationships and downstream information in marketing channels

    Industrial Marketing Management

    (2010)
  • T.K. Das et al.

    Alliance constellations: A social exchange perspective

    Academy of Management Review

    (2002)
  • T.H. Davenport

    How to design smart business experiments

    Strategic Direction

    (2009)
  • G.S. Day

    The capabilities of market-driven organizations

    Journal of Marketing

    (1994)
  • G.S. Day

    Closing the marketing capabilities gap

    Journal of Marketing

    (2011)
  • G.S. Day

    An outside-in approach to resource-based theories

    Journal of the Academy of Marketing Science

    (2014)
  • G.S. Day et al.

    Strategy from the outside in : Profiting from customer value

    (2010)
  • G.S. Day et al.

    Scanning the periphery

    Harvard Business Review

    (2005)
  • W.S. Desarbo et al.

    Revisiting the miles and snow strategic framework: Uncovering interrelationships between strategic types, capabilities, environmental uncertainty, and firm performance

    Strategic Management Journal

    (2005)
  • P.R. Dickson

    Toward a general theory of competitive rationality

    The Journal of Marketing

    (1992)
  • P.M. Doney et al.

    An examination of the nature of trust in buyer-seller relationships

    Journal of Marketing

    (1997)
  • Cited by (47)

    • Impact of ethics training and audits on the relationship quality of business-to-business partners in sharing economy

      2022, Industrial Marketing Management
      Citation Excerpt :

      The online channel should be integrated with the traditional offline channel to accurately drive buyer-supplier matching (Kim & Moon, 2021). The buyer-supplier relationship improves the sharing economy's capability through supplier flexibility and information sharing (Yang, Jiang, & Xie, 2019). Firms are specialized in a particular area and they do not have all the resources to run smooth operations.

    • What's in it for me? The occurrence of supplier innovation contribution in the context of supplier-dominant innovation: The supplier's perspective

      2022, Industrial Marketing Management
      Citation Excerpt :

      Second, in the absence of innovation relevance, an innovative supplier may be valueless to the buyer (Chae et al., 2019). Buyer-supplier differences in technology and R&D directions can limit the supplier's ability to effectively leverage its expertise in providing innovation contributions (Frankort, 2016; Yang, Jiang, & Xie, 2019). A valuable supplier can not only generate new insights and technological breakthroughs, but also better understand the buyer's needs (Pihlajamaa et al., 2019), thereby guaranteeing its ability to make meaningful innovation contributions.

    View all citing articles on Scopus
    View full text