Investment decision-making in supplier networks: Management of risk

Supply chain management and networks are important fields of study nowadays. In networking there are undeniably certain benefits but possibly also problems and risks. However, networking will cause changes in the economic environment and one of the changes is linked with investment decision-making at a networked supplier. Despite the increased interest in the networking area, useful information is still lacking about this way of organizing economic activity. Other parties in the network affect each other's decisions when trying to build a streamlined network to produce end products. Dependence on the buyer creates pressures for suppliers to make certain investments and sometimes buyers' own interests can corrupt the information that they give to suppliers. The purpose of this paper is to enhance the understanding of investment decision-making and risks in buyer-dominating supplier networks. The study concentrates on the following research questions: How do network companies make investment decisions, what are the main risks related to investing in network context, and what possible ways are there to manage risks? The paper addresses the risks that enterprises have faced in their partnership relationships in the area of investment decision-making. Risks were mainly related to increasing responsibilities for suppliers and reliability of information, based on which investments are made. We also discuss how some important factors like openness, trust, power, and dependence affect the subcontractor's financial decisions in a network environment. The paper presents empirical evidence from the electronic and metal sectors. (c) 2005 Elsevier B.V. All rights reserved.