Risk allocation, supplier development and product innovation in automotive supply chains: a study of Nissan Europe

As new technologies and globalization change the vertical contracting structure of the auto industry, risk allocation in OEM-supplier relationships remain critical to ensure innovation and competitiveness. Developing previous, agency theory based research on the levels and the determinants of risk sharing, this study of Nissan Europe’s supply chain shows that the OEM absorbs more risk (a) the greater the supplier’s environmental uncertainty, (b) the more risk averse the supplier, and (c) the less severe the supplier’s moral hazard. The study also shows that Nissan, though still absorbing risk from their suppliers to a nonnegligible degree, has moved to a more market-based approach to supplier selection and development as a consequence of technological change, the industry globalization and the merger with Renault.