New study explores negative effect of unethical practices on buyer-supplier relationships

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In a business-to-business (B2B) supply chain context, business customers who conduct unfair and socially irresponsible business practices have been shown to have significantly decreased suppliers' intentions to continue their business relationships, according to researchers from Monash University and Northeastern University.

Published in the Journal of Business Ethics, the study is the first to examine the effect of customers' unethical practices on their suppliers' intention to continue their business relationships, offering new insights for businesses seeking to navigate ethical dilemmas.

This study is in a business-to-business (B2B) context, focusing on the relationship between firms; for example, suppliers and customers.

Professor Daniel Prajogo, from the Department of Management in the Monash Business School, said the study surveyed 506 managers from small to medium-sized suppliers in Australia, who—due to their size and limited resources—were likely to have weaker bargaining power against their customers. The suppliers ranged from sectors including manufacturing, retail, transport, construction and health care.

"Our study distinguished two types of unethical practices displayed by the customer, those being unfair business practices that have a direct negative or harmful effect on suppliers' interests, for example reducing their profitability," Professor Prajogo said.

"The other was socially irresponsible practices, such as polluting the environment or paying low wages. While socially irresponsible practices may not have an immediate direct effect on the supplier, such behaviors do have a wider impact on society and may cause indirect harm to the supplier, for example, negative reputational effects.

"Our findings show that both customers' unfair or opportunistic business practices toward suppliers and their socially irresponsible practices had negative effects on suppliers' intention to maintain their relationship with their customers.

"We also found, however, that the negative impact is balanced by the level of dependence suppliers have on their customers and the benefits they derive from the relationship with the customers. These benefits may lead suppliers to tolerate unfair business practices, as they feel compensated by the customers for any financial hurt or loss suffered. Similarly, the supplier's dependence leads them to endure the socially irresponsible practices of their powerful customers because of their dependence, or a lack of alternative customers in the markets," added Professor Prajogo.

Associate Professor Brian Cooper, from the Department of Management in the Monash Business School said, "Overall, our study demonstrated that intention to continue buyer-supplier relationships in response to unethical practices is determined by self-interest and resource dependence.

"From our findings, we encourage rethinking on governance in supply chain relationships. While there is no simple answer to mitigate and/or eliminate unethical practices, we call for institutional reformation in supply chain relationships, which can empower small and medium sized suppliers to be on a more equal footing when dealing with unacceptable behaviors from customers."

Associate Professor Ross Donohue, also from the Department of Management in the Monash Business School, said, "The ethical implications of this research are critical for business leaders. By understanding how unethical practices affect supplier relationships, companies can better align their behaviors to foster fairer, more sustainable partnerships.

"Furthermore, regulators and policymakers have an important role to play in improving fairer business practices, especially when there is a power imbalance between suppliers and buyers."

More information: Daniel Prajogo et al, The Effect of Customers' Unethical Practices on Suppliers' Intention to Continue Their Relationships, Journal of Business Ethics (2024). DOI: 10.1007/s10551-024-05742-8

Journal information: Journal of Business Ethics

Provided by Monash University