Cultural interconnectedness in supply chain networks and change in performance: An internal efficiency perspective

We propose the conceptualization of cultural interconnectedness in a supply chain network. As a multiplex network structure, cultural interconnectedness refers to the extent of inter-linking in organizational cultures of supply chain members. Complementing ongoing research on supply chain networks, we propose and test the effects of cultural interconnectedness—conditional on production, inventory, and marketing efficiencies—on the next-period change in performance. Our sample consists of supply chain networks of 3434 publicly traded firms representing an unbalanced panel of 28,461 firm-year observations from 2001 to 2017. Controlling for current period performance (return on assets) and growth opportunities (Tobin's Q) and change in performance and change in growth opportunities, cultural interconnectedness is not directly associated with a change in return on assets in the next period, however, it strengthens the relationship between production efficiency or inventory efficiency and change in return on assets in the next period, but not for marketing resource efficiency. Based on recent advances in social network econometrics, our findings are robust to controlling for spatial autocorrelation in supply chain networks, endogeneity, and spillovers among supply chain network partners, and also for LASSO regressions. Lack of direct effects of cultural interconnectedness, but support for moderation effects for production and inventory efficiencies, imply that cultural interconnectedness is a necessary but not a sufficient condition to improve performance. Production and inventory efficiencies perhaps represent the necessary circuitry for the efficacy of cultural interconnectedness in supply chains. The findings inform operations managers on the role of cultural interconnectedness among supply chain partners.