Strategic Alignment and Duration of Interfirm Relationships

Prior studies suggest that strategic alignment in the supply chain (i.e., supply chain partners share similar strategic objectives) helps build trust between the partners, reduce transaction costs, and alleviate coordination problems. We posit that a closer strategic alignment helps strengthen supply chain relationships by making them more durable. We use regulation-mandated major customer disclosures to construct a dataset consisting of supplier-customer dyads to examine this proposition. After controlling for the characteristics of suppliers and customers, we find that greater strategic alignment between suppliers and their customers extends the duration of supply chain relationships. Additionally, we hypothesize that the advantages of strategic alignment should be greater for suppliers in more competitive product markets since customers face lower switching costs when their suppliers are based in industries with more competition. We find support for this hypothesis as well.