The influence of interpersonal relationships on interorganizational relationships in supply chains: the role of loyalty and conflict

Purpose The article has three objectives. First, drawing on transaction cost economics (TCE), it examines the mediated relationship between asset dedication and the benefits that suppliers derive from customer relationships by means of legal contracts. Second, drawing on relational exchange theory (RET), it examines the moderating effect of both personal loyalty and personal conflict on the relationship between suppliers’ asset dedication to customers and the extent of legal contracts. Thirdly, it investigates how these interpersonal dynamics moderate the link between the extent of legal contracts and the benefits that suppliers derive from customer relationships. Design/methodology/approach Survey data was obtained from 506 managers or senior managers of Australian small-to-medium sized enterprises (SMEs), which in Australia are defined as organizations with less than 200 employees. Findings We found support for a mediated relationship between asset dedication and the benefits that suppliers derive from customer relationships through the extent of legal contracts. Contrary to our hypothesis, the results show that personal loyalty strengthens the relationship between asset dedication and the extent of legal contracts, while personal conflict does not show any moderating effect. Further, as expected, the results show that personal loyalty diminishes the relationship between the extent of legal contracts and the benefits derived by suppliers, while personal conflict enhances the relationship. Practical implications The findings call for attention to firms that rely on their representatives in managing interorganizational relationships. Firms need to establish a solid system that provides clear behavioral guidelines for the firms’ representatives when negotiating with other firms in order to limit the influence of personal and subjective issues on business matters. Furthermore, legal contracts will help ensure the fulfillment of the goal of interorganizational relationships in situations of personal conflict. Originality/value To the best of our knowledge, integrating TCE and RET, this is the first study to examine the interaction between interpersonal and interorganizational relationships within a supply chain context. Specifically, our findings highlight the dual role of personal loyalty in contract formation and contract enforcement with it strengthening the former and weakening the latter.