Exploring growth in vertical inter-firm relationships: small-medium firms supplying multiple food retailers

Abstract

This paper presents new insights into the growth of small and medium-sized enterprises (SMEs) engaged in vertical inter-firm relationships. It adopts a processual and resource-based perspective and focuses on the experiences of fresh produce businesses which have achieved high rates of growth while supplying the UK’s large multiple food retailers. The context in which these suppliers operate is shown to be a complex and dynamic supply chain, characterised by increasing structural concentration and close vertical linkages. The primary research investigates how certain SMEs have prospered in an apparently ‘hostile’ environment. It includes a programme of matched-depth interviews, conducted across the retailer-supplier dyad. Content analysis of transcripts reveals six factors which appear to be strongly associated with the formation of ‘successful’ relationships. In subsequent interactions, securing ‘developmental’ supplier status appears to open the way to a self-reinforcing cycle of Penrosian learning and reinvestment. This cycle contributes to growth in the supplier firm. The authors argue that, with certain crucial caveats, growth-oriented SMEs can develop mutually beneficial relationships with much larger ‘customer’ firms. The paper concludes by drawing out wider policy implications and indicating how this contextualised approach might be used in other contexts.