Ch‐Ch‐Ch‐Ch‐Changes: The Impact of Supply Base Growth, Contraction, and Turnover on Firm Innovation

ABSTRACT Modern supply chains are experiencing more disturbances due to regulatory shifts, rising sustainability standards, emerging or declining markets, and disruption to critical inputs. Some firms react by strengthening existing supplier partnerships to resist changes, while others reconfigure relationships with suppliers to embrace changes. Implicitly assuming structural changes are generally undesirable, research has traditionally supported the former approach to resist structural changes. However, the literature is not conclusive about the validity of this assumption. This study examines how supply base changes, captured as growth, contraction, and turnover, create opportunities and challenges for firm innovation. The results suggest that supply base growth positively impacts innovation performance, while supply base contraction has no significant statistical association. Supply base turnover has a nonlinear effect: it initially boosts innovation performance but negatively impacts it at high levels. This study contributes to theory by highlighting how supply base instability can bring innovation opportunities and risks to a firm. Specifically, supply base instability is broken down into distinct aspects, which are shown to affect firm innovation in distinctive manners. The findings not only urge supply managers to embrace supply base changes as an opportunity conducive to firm innovation but also caution against the disruptiveness of excessive changes.