Decomposing the effect of supplier development on relationship benefits: The role of relational capital

• Supplier development investments do not automatically result in relationship benefits and can be even detrimental.
• Relational capital enables supplier development to create benefits for suppliers and reciprocated benefits for buyers.
• Capability development and supplier governance work separately to increase relational capital resulting in mutual benefits.
• Relational capital can overcome resentment associated with supplier governance compliance thus encouraging shared benefits.
• Paradoxically relational capital hinders reciprocated benefits from capability development.

Buyers invest considerably in developing their suppliers, yet the performance effects of such investments are not universal. Drawing on social capital theory, this research investigates whether the relationship between supplier development and relationship benefits may be facilitated by the generation of relational capital. The authors examine mediating and moderating roles of relational capital in the relationship between two aspects of supplier development (capability development, supplier governance) and two dimensions of relationship benefits (supplier benefits, buyer benefits), using survey data collected from 185 suppliers of a large manufacturing firm. Investment in supplier development does not automatically result in benefits for the supplier or reciprocated benefits for the buyer. Rather, relational capital “bridges” supplier development and relationship benefits. Without relational capital, benefits from capability development do not accrue, and the impact of a supplier governance regime can be even detrimental. In conditions of high relational capital, capability development results in lower perceived buyer benefits. The results can help managers ensure that the benefits from their supplier development efforts fully materialize.