Global buyer–supplier networks and innovation: The role of technological distance and technological breadth

Abstract One of the critical challenges of technology management for a firm is managing technological knowledge. This study focuses on available technological knowledge in a firm's global supplier network and examines factors that accrue innovation benefits from such knowledge for a buyer firm. Using absorptive capacity as a theoretical lens, we specifically examine technological distance, technological breadth, and extent of global sourcing, and how these factors interrelate in influencing a firm's innovation performance. The panel data is drawn from various sources (Bloomberg SPLC, PATSTAT Global, and Compustat). Our sample spans four years from 2011 through 2014 and comprises an unbalanced panel of 878 firm‐year observations derived from buyer–supplier relationship data of 246 unique buyer firms. Embedded in this data are 846 unique supplier firms and 9291 dyads (buyer–supplier pairs). The findings confirm the negative association between technological distance and innovation performance, and the positive association between technological breadth and innovation performance. Contrary to expectations, technological distance plays a negative moderating role in the relationship between technological breadth and innovation performance. The results also show that while the extent of a firm's global sourcing has a positive relationship with its innovation performance, the relationship changes with technological distance.