Supplier’s response to institutional pressure in uncertain environment: Implications for cleaner production

The purpose of this study is to understand how suppliers respond to institutional pressure in an uncertain environment and what impact do these responses have on their financial performance as well as on cleaner production. Semi-structured interviews were conducted with 20 Tier 1 suppliers to automotive companies (OEM) in India, which is widely cited for having a highly uncertain environment. The collected data was analyzed using the grounded theory approach. Implications for the financial performance of the suppliers were examined using net profit margin data. While some tier 1 suppliers respond by adopting institutional isomorphism (acquiescence) and follow the rules of the game, others respond reactively (ignorance) and facilitate the building and strengthening of networks with low-cost suppliers (tier 2 suppliers). The adoption of reactive response was hidden by tier I suppliers from the original equipment manufacturers (OEMs). Based on the insights from data, propositions were developed on the supplier’s response to institutional pressure in an uncertain environment. Current research discusses the implications that supplier’s response will have on the buyer-supplier relationship and inter-organizational coordination, which is expected to influence their financial performance. Although bypassing essential regulations through non-regulated suppliers can reduce the cost significantly in the short term, it is expected that non-regulated suppliers would hamper the cleaner production compliance due to lack of expertise. The current study provides unique insights for procurement managers that would change the way they coordinate with supply chain partners operating under institutional pressure in an uncertain environment and handle sustainable production. The study is novel in describing how suppliers respond to institutional pressure in environments with high uncertainty.