Buyer-supplier relations in industrial markets: When do buyers risk makingidiosyncratic investments?

It is well established that the existence of investments specific to a rela tionship influences the choice of governance structure, including the use o f contractual safeguards. What is less well understood are the circumstance s leading to the creation of those specific assets to begin with. This pape r explores the industrial buyer's motives to put itself at risk by making i nvestments, tangible and intangible, which cannot be readily redeployed fro m one supplier to another. Using original data from a sample of 388 supply relationships involving all automakers in the U.S. and Japan, we examine fe atures of the supply task, the supplier, and the supply environment which s erve as motives to make supplier-specific investments. We also examine pote ntial factors which facilitate the posting of specific assets as "credible commitments" to attenuate supplier opportunism. We find that specific inves tments by buyers serve as a mechanism to 1) increase coordination when the manufacturing task is complex, 2) buffer the buyer against technological un certainty, and 3) build close relationships when the requisite production s kills are scarce (the supply market is thin). We find more specific investm ents in supply arrangements that are embedded in a broader business relatio nship. We find fewer supplier-specific investments in the Japanese context. Finally, we find that buyers focus their investments on lesser-known, low- share component makers, perhaps to capitalize on a unique, focused supplier capability.