Working Paper
Many firms are pledging to reduce greenhouse gas emissions across their value chains. However, this requires their suppliers to also adopt more climate-friendly practices for decarbonization. This can involve addressing gaps in not only the suppliers’ ability but also their willingness to adopt such practices, which can be challenging if the suppliers perceive the practices as risky or potentially detrimental to their economic well-being. We examine the effectiveness of relational investments to help mitigate this challenge, arguing that relational investments can serve as a signal of the firm’s commitment towards joint value creation. In a field experiment conducted with supplier farmers in a multinational firm’s agricultural supply chain in India, we examine the impact of two kinds of relational investments in providing the farmers with customized agricultural services that they valued. In the first intervention, the firm’s field officers offered the farmers support specific to the crop the firm sourced from them. The second intervention additionally involved bringing in expert agronomists to provide the farmers with support also on broader agricultural matters of interest to them. Relative to a control condition in which the farmers only received training on the relevant climate-friendly practices, both interventions improved the farmers’ adoption of the recommended practices. The second intervention was more impactful than the first in improving the farmers’ practice adoption as well as their retention with the firm. Exploratory mediation analysis and post-experiment field interviews suggest that these findings are partly driven by the farmers’ positive perception of the firm’s relational investments.
Faculty
Professor of Strategy
