The impact of supply chain specific investments on firms' market performance: the mediating role of innovation

Purpose Manufacturers' specific investments (SIs) in a specific partner that are of lower value when used in an alternative relationship, such as training employees and tailoring systems to achieve better cooperation, can help improve market performance. However, previous studies lack a simultaneous focus on a manufacturer's SIs in its upstream and downstream partners. The purpose of this study is to address the effects of manufacturers' SIs in their suppliers and customers on the two types of innovation and market performance individually and jointly and the mediating effects of radical and incremental innovation on relationships between SIs and market performance. Design/methodology/approach This study tests proposed relationships based on data collected from 206 manufacturers in China using regression methods. Findings Results show that SIs in customers directly and indirectly affect market performance through radical and incremental innovation. However, SIs in suppliers cannot directly improve market performance but indirectly enhance market performance through radical innovation. Furthermore, results also show the interaction of SIs in suppliers and customers is positively related to market performance and radical innovation. Originality/value This study contributes to the literature on SIs by identifying supply chain SIs (SCSIs) through simultaneously focusing on SIs in suppliers and customers and exploring the direct and indirect effects of SCSIs on market performance. This study also contributes to the innovation literature by empirically verifying incremental and radical innovation as effective intermediaries that help convert SIs into the actual performance improvement.