Introduction

Inter-firm relationships are critical to companies’ performance and thus have attracted extensive research attention, including in the supply chain field. Many studies have considered the determinants of successful relationships, such as trust, commitment, and social capital. However, there is evidence that many inter-firm relationships suffer from problems and do not last. A study published in Forbes shows that 47% of supplier collaborations fail, and, according to the Charted Institute of Procurement and Supply, 8 in 10 firms experience failure in their supplier relationships (Sangam, 2017). Some studies have identified a number of antecedents of exiting a relationship, including dissatisfaction, choice of an alternative business partner, low switching costs, conflict, goal incongruence, and loss of trust (Fawcett et al., 2015; Geyskens & Steenkamp, 2000; Ping, 1993; Tran et al., 2021). A number of studies have also looked at unethical practices of suppliers, including opportunistic behaviors (see, for example, Huo et al., 2016; Skowronski et al., 2020). However, one plausible, but understudied, cause of business-to-business (B2B) relationships (between buyer and supplier) breakdown is unethical practices undertaken by the customers.

In this paper, we define unethical practices by following the tradition identifying harm to others as a central moral concept (Gert, 2005; Shiffrin, 2012). Although causing harm to others is not the only way to conceptualize unethical practices, it has a classical foundation going as far back to Hobbes’ social contract theory and Mills’ liberal theory. The concept of harm to others is also central to many discussions in relation to corporate socially irresponsible practices, as elaborated below (Alcadipani & Medeiros, 2020; Campbell, 2007; Clark et al., 2022; Iborra & Riera, 2023). In the business ethics context, Cullinan et al. (2008) differentiate between organization-harm and organization-gain. Organization-harm refers to actions where the individual organizational decision-maker derives a benefit, while their employing organization is harmed (e.g., a decision-maker receiving a bribe to purchase material from a sub-standard supplier). Conversely, organization-gain refers to actions where the organization benefits, while parties external to the organization are harmed. Here our focus is on organization-gain where third parties (e.g., other firms or stakeholders) are harmed.

Our study is focused on suppliers’ responses to their perceived customers’ unethical practices in light of their intention to maintain or exit the (business) relationship with their customers. We focus on relationship exit as a response to aggression, that is, behavior intended to harm another individual who does not wish to be harmed (Baron & Richardson, 1994). While there are a number of factors that may cause an individual to act aggressively (frustration, trait anger, psychopathy, etc.), the findings of research conducted across a range of social psychology topics (justice/fairness, defensive attributions) converge to indicate that, when people perceive that they have been harmed, they tend to respond in three ways: they attempt to attribute blame, they express moral indignation, and they seek to mete out punishment for retribution. Exiting a relationship is an option that allows market participants to withdraw from otherwise unsatisfactory relationships, including those that are abusive or dominating (Taylor, 2017). We acknowledge that there are a range of responses that suppliers may adopt in response to unethical business practices perpetrated by customers, such as raising the issue with the leaders of the offending firm, taking legal action against breach of contract or lodging a complaint with authorities regarding unfair price agreements (see, for example, Klassen et al., 2023). However, here our focus is on exiting the relationship with the customer because failure of business-to-business relationships has been identified as a critical issue in terms of maintaining increasingly fragile supply chains as well as financial viability of firms in these relationships (Hill et al., 2009). By examining how unethical business practices affect relationship breakdown, we seek to provide insights to firms on the consequences of these practices and how to avoid relationship breakdown because this is an ultimate and essentially irrevocable outcome.

Only a few studies have examined unethical practices in inter-firm relationships and these have almost invariably focused on customers’ responses to the behaviors of suppliers. Each party contributes to the maintenance and continuance of a relationship and therefore this imbalance in the literature has left us largely ignorant of the effect of customers’ unethical practices on suppliers’ attitudes and intentions in terms of these relationships.

Taking the perspective of the supplier, we distinguish two types of unethical practices of customers:  behaviors directly targeting and harming a given supplier (e.g., delaying payment or use of obscure contract terms and conditions), which we refer to here as unfair business practices, and  behaviors that result in harm to other actors (stakeholders) in society, which, following Lin-Hi and Müller (2013), we refer to as socially irresponsible practices. In a broad sense, both types of practices bring harm, damage or loss to other parties (Iborra & Riera, 2023). However, we argue they are different in terms of the primary party that is targeted or impacted by the actions, but this important difference has been ignored in the literature. Unfair business practices have a direct negative or harmful effect on suppliers’ interests (e.g., profitability). On the other hand, while socially irresponsible practices of the customer (such as polluting the environment or paying low wages) may not have an immediate direct effect on the supplier, these socially deviant behaviors do have a wider impact on society (and may cause indirect harm to the supplier, for example, in terms of negative reputational effects). The present study is the first to our knowledge to empirically compare these two types of unethical practices of customers: unfair business practices directly targeted toward the supplier and socially irresponsible practices that impact on other stakeholders.

In examining suppliers’ response to the unethical practices by customers, we consider two conditioning factors that could influence their response: (a) suppliers’ dependence on their customers and (b) the material benefits suppliers derive from their business relationships with their customers. To the best of our knowledge, there are no prior studies that have specifically examined the conditioning factors on suppliers’ response toward customers’ unethical behaviors. Drawing upon resource dependence theory (RDT), we propose that suppliers’ dependence reflects the importance of their customers—for example, due to a high proportion of the volume or the value of business (i.e., sales) gained from their customers or the length of their relationships with the customers or the lack of alternative customers in the market. The more dependent a supplier is on the customer, the more difficult it will be for the supplier to exit the relationship and to replace the customer, due to high switching costs (Mir et al., 2017). By contrast, the benefits derived from a customer can come in forms other than sales revenue. For example, the customer can help the supplier penetrate new markets or establish a reputation that provides the supplier with a competitive advantage (Kumar et al., 1992). We propose that both suppliers’ dependence on their customers and the benefits derived by the suppliers’ relationships with their customers could impede the suppliers’ intention to exit their relationships, despite the unethical practices exhibited by the customers.

As well as responding to the call for studies on the problem of failed inter-firm relationships, our study of the effects of unethical practices by powerful actors perpetrated against those who are more vulnerable broadly addresses the United Nations Sustainable Development Goals (SDGs) of decent work and economic growth, reduced inequalities, peace, justice, and strong institutions, as well as partnerships for the goals. In addition, our study offers several specific contributions. First, while the supply chain literature has examined failures in buyer–supplier relationships, most focus on the customers’ perspective where customers terminate the relationship with suppliers for various reasons (Huo et al., 2016; Skowronski et al., 2020). Our study seeks to extend these studies by examining the under-researched dynamic of buyer–supplier relationships from the suppliers’ perspective. In a relationship, the party with greater power or control is more likely to engage in unethical practices (Hawkins et al., 2013). Hence, in circumstances where the customer is in a stronger bargaining position, their unethical behaviors are salient, but remain largely unknown. Examination of customers’ unethical behavior is important, particularly in light of high-profile cases. One prominent example is the case of General Motors, that not only demanded price concessions from suppliers for upcoming seasons, but also misused its market power to cancel and renegotiate existing contracts (Schleper et al., 2017). There have also been documented cases of customers engaging in unethical practices impacting suppliers in the retail (Goolam Nabee & Swanepoel, 2021) and transportation sectors (Kim et al., 2022).

Secondly and importantly, our study examines the consequences of unethical business practices perpetrated by customers. Specifically, we examine the suppliers’ responses in terms of their intention to maintain or exit their relationships with their customers, as well as the conditional factors which can influence (moderate) their intention. Most studies have examined the buyer–supplier relationship from a principal-agent perspective that positions customers as principals and suppliers as agents (Matinheikki et al., 2022). In their review, Matinheikki et al. (2022) found only a handful of studies that have approached principal-agent issues from an agent perspective, and they suggest that agents (suppliers) suffer from poor performance as a result of unfair treatment from the principals (customers). Yet these studies did not examine how suppliers respond to the unethical practices of customers.

Thirdly, by distinguishing unfair practices that directly harm suppliers’ immediate interests from socially irresponsible practices, which bring damage to the wider society (and may indirectly impact suppliers through reputational effects), we examine whether both types of unethical practices are considered as equally serious for continuation of the buyer–supplier relationship. Differentiating between the effects of these two types of unethical practices will contribute to our understanding of how suppliers respond to these practices.

Fourth, by incorporating conditioning factors that potentially affect suppliers’ responses to customers’ unethical practices, we advance our knowledge regarding possible boundary conditions. Here we focus on dependence and the benefits derived from the customer as boundary conditions which, based on our theorizing, we believe can influence suppliers’ intention to continue the relationship. Although some studies have employed social exchange theory (SET) to understand supplier–customer relationships (Griffith et al., 2006; Narasimhan et al., 2009), we integrate SET, specifically the concept of negative reciprocity (Blau, 1964) and RDT (Pfeffer & Salancik, 2003), to provide new insights. In particular, we show how suppliers’ self-interest and dependence on their customers may moderate their response to unethical practices and we shed light on why suppliers continue these relationships. While supplier–customer relationships involve economic exchange, these are typically enduring and frequent interactions that are built upon trust and loyalty. Hence, there is an important element of social exchange, which is absent in one-off transactions between economic actors (Blau, 1964; Cropanzano & Mitchell, 2005).

Finally, our study contributes to our understanding of business ethics in the supply chain context, particularly with regard to small-to-medium-sized (SME) suppliers, which is the focus of this study. SMEs, due to their size and limited resources, are more likely to have a lower bargaining power position with their customers relative to large enterprises (Moatti et al., 2015) that makes them particularly vulnerable to unethical practices from other parties, including customers. Issues relating to dominant behavior and bullying practices by customers in supply chains in the context of smaller-sized suppliers, in particular, are not well understood (Lumineau & Oliveira, 2020), and therefore our study provides practical insights regarding the reasons why supplier–customer relationships fail and the circumstances under which they continue.

Theoretical Background and Hypotheses

Unfair Business Practices by Customers and Suppliers’ Responses

In defining customer unfair business practices, we draw upon the study by Kim et al. (2022) who defined such practices as customers’ abuse of their bargaining power to maximize their interests by exploiting suppliers who are in a weaker position. These are commonly labeled as opportunistic behaviors (Oliveira & Lumineau, 2019). The concept of opportunistic behaviors originated from the work of Williamson (1993), who defined it as self-interest seeking with guile. In this regard, customers may conduct certain practices that serve their interests unfairly, which often result in loss on the suppliers’ side (Crosno & Dahlstrom, 2008). For example, the study by Aßländer and Roloff (2010) of the automotive industry in Germany revealed a number of unethical practices by customers directed toward their suppliers. These included renegotiating contracts during the contract period, adjusting the size of the order to suit their changed needs, and falsely stating that they had found a cheaper supplier elsewhere to force the current suppliers to accept extremely small margins (Fig. 1).

Fig. 1
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Research model

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Following Giddens (1979), however, we acknowledge that power is pervasive in all social relationships where it has a transformative capacity to change the social and material world that can lead to positive or negative outcomes. As such, customers exercise their bargaining power over suppliers not exclusively to gain advantages from suppliers unfairly, but also to produce positive outcomes. In this study, we focus on the dark side of the use (or to be precise, abuse) of power by customers to gain an unfair advantage over their suppliers. Actions such as delaying payment and forcing changes in contract conditions represent buyers’ attempts to extract unfair advantages from their suppliers (Nyaga et al., 2013; Schleper et al., 2017).

Under a consequentialist model of ethical decision making, such harmful behaviors clearly constitute unethical practices which may affect the suppliers’ intention to continue their relationships with their customers. Here we draw upon SET and specifically the concept of negative reciprocity to frame our thinking. Negative reciprocity occurs when an action that has a negative effect on one party is returned with an action of a similar kind by the affected party (Blau, 1964). In this case, customers’ unfair business practices that directly harm suppliers’ interests may undermine suppliers’ intention to continue these open-ended relationships. While the intention to exit a business relationship with an abusive customer could arise to protect the supplier from future (and possibly greater) damage arising from the customer’s actions, we believe that it also serves as a punishment to the customer, for example by imposing high switching costs. Moreover, the potential effect of the punishment can even be greater if we consider the fact that the supplier can also communicate negative information about the customer (‘word-of-mouth’) to other suppliers (or potential suppliers), leading to reputational damage (Hill et al., 2009). More generally, negative reciprocity, as a form of retaliatory behavior, may not only be motivated by expected future material benefits (or reductions in harm), but also by a desire to maintain equity in the relationship, even if it occurs at a personal cost (Fehr & Gächter, 2000). Therefore, a decreased intention to continue the relationship with the customer (due to their unfair or opportunistic business practices) is likely to reflect the negative reciprocity of the supplier, and, accordingly, we hypothesize:

H1: Unfair business practices by customers are negatively associated with suppliers’ intention to continue the relationship with their customers.

Socially Irresponsible Business Practices by Customers and Suppliers’ Response

As discussed above, socially irresponsible business practices cause harm to various stakeholders in the wider society. Socially irresponsible practices such as poor wages and poor conditions for workers, child labor, price fixing, and environmental pollution have been noted in the literature. Several serious socially irresponsible practices conducted by large companies have even attracted media attention. Well-known examples include Shell (Brent Spa), Nike (working conditions of suppliers), Mannesmann (severance packages), Enron (accounting fraud), and BP (oil spill/pollution).

Some scholars also differentiate between corporate socially irresponsible practices on the basis of intentionality. Intentional socially irresponsible practices are actions that are intentionally undertaken to inflict harm on others, while unintentional socially irresponsible practices are not designed to harm others, but occur from unforeseen corporate actions (Lin-Hi & Müller, 2013). Irrespective of whether these socially deviant actions by organizations are intentional or unintentional, scholars agree that in essence both occur as a result of poor governance protocols and both are harmful corporate actions (Alcadipani & Medeiros, 2020).

Surprisingly, there is very little research on suppliers’ attitudes toward customers’ socially irresponsible behaviors. We believe, however, that it is plausible that suppliers will also react if their customers engage in socially irresponsible behaviors for several reasons. Firstly, previous studies show that socially irresponsible practices lead to negative evaluations of the offender by the target (i.e., the firm) (Folkes & Kamins, 1999). Such negative attitudes by the target may drive an intention to punish the offender, including complaining, boycotting, or avoiding contact with them (Lazarus, 1991). Hence, exiting the relationship with the customer can be seen as the supplier’s behavioral response to punish the socially irresponsible practices of the customer.

Secondly, suppliers may value social responsibility as an important part of their long-term growth strategy. As such, maintaining a relationship with customers who engage in irresponsible behavior may jeopardize their reputation and strategic interests. By exiting the relationship with the unethical customer, the supplier signals or demonstrates their commitment to corporate social responsibility (CSR). This proposition is consistent with the concept of dis-identification proposed by Elsbach and Bhattacharya (2001). Dis-identification occurs when actors distance themselves from organizations that demonstrate practices that are considered harmful. This dis-identification will lead actors to take actions that signal their separation from organizations that engage in unethical practices, for example, by publicly distancing themselves.

Applying this concept to the supplier–customer context, we propose that a decreased intention to continue the relationship with the unethical customer may reflect the supplier’s signaling their dis-identification with the customer’s irresponsible behavior. Therefore, we hypothesize:

H2: Socially irresponsible business practices by customers are negatively associated with suppliers’ intention to continue the relationship with their customers.

Differentiating the Effects of the Two Unethical Practices

While we propose that the two types of unethical practices by customers will have a negative effect on suppliers’ intention to continue their relationships, we argue that, because the consequences of these unethical practices vary in direction and proximity, they will differ in their intensity. Drawing on the norm of self-interest (Miller, 1999), we argue that a supplier would be more concerned with direct harmful effects on their business, compared to indirect, more distal, and longer-term impacts of socially irresponsible behaviors of a customer. While CSR violation by the customer may also drive the supplier to consider exiting their business relationship (as we argue in H2), their driving force may not be as intensely felt as the unfair business practices directly targeted at the supplier (as in H1). In other words, we argue, based on self-interest, that the supplier will be affected by practices that are more direct and immediately harmful to themselves, compared to those that are harmful to the wider society. Also, while the reputational effects of poor social responsibility are likely to be acute, we expect that the socially irresponsible practices of the customer will be less impactful on the supplier, as the latter are more distal to the market (Yang & Jiang, 2023). Accordingly, we hypothesize:

H3: The negative effect of customers’ unfair business practices on suppliers’ intention to continue the relationship with their customers is stronger than the negative effect of customers’ socially irresponsible practices.

Conditioning Factors that Influence the Supplier–Customer Relationship

We draw upon RDT to inform our hypothesizing around the moderating effects of suppliers’ dependence on their customers, in terms of the relationship between unethical practices and suppliers’ intention to continue their relationships. According to RDT, firms exist in interconnected resource exchange networks within uncertain environments (Pfeffer & Salancik, 2003). In order to bring stability and certainty to these environments, firms may deploy a range of strategies, including entering into supply chains, as these cooperative relationships reduce uncertainty and provide stability in terms of inputs and outputs (Crook & Combs, 2007). While these are cooperative relationships, the distribution of dependence and interdependence within supply chains is asymmetrical and therefore leads to power imbalances.

The ideal in business is for a firm to leverage value from suppliers or customers and to simultaneously limit the extent to which the firm itself is leveraged (Cox, 1999). As a consequence, a key goal for firms is to exert control over others in the supply chain, while reducing their dependence. This imbalance of power allows the dominant partner in the supply chain to exercise greater influence over the weaker dependent partner (Ulstrup Hoejmose et al., 2013). By doing so, the dominant partner is able to achieve profitability and success by pursuing its own agenda at the expense of the dependent partner (Benton & Maloni, 2005). In essence, the dependence of the weaker partner in the supply chain becomes the source of power for the more dominant partner because the latter is more independent (Emerson, 1962).

Suppliers may be the dependent partner in the relationship based on a number of factors. For example, this dependence may occur when (a) there are limited customers and many suppliers; (b) the customer has a high percentage share of the market for the supplier; (c) the supplier is inordinately reliant on the customer for income with few other sources; (d) buyer switching costs are substantial; (e) customer switching costs are modest; and (f) customer search costs are small (Cox, 2001). As a result of this power imbalance and dependence, there is a greater likelihood of a powerful customer behaving opportunistically by flouting social responsibility expectations or by exploiting a less powerful supplier via unfair business practices. Consequently, the supplier may tolerate unethical business practices because of their dependence on the customer. In turn, these supplicant suppliers become ensnared in what Grandinetti (2017) referred to as ‘traps.’ Suppliers who are in these traps are aware that they are being exploited or that their powerful customer is behaving in a socially irresponsible manner; however, they have to endure these unethical practices and continue in the relationship because of their dependence (Glavee-Geo et al., 2022). At times, these traps can take the form of complicity in unethical practices, as in the case concerning manipulations with vehicle emissions data involving Bosch as the supplier and Volkswagen as the buyer (Levin, 2019). In other words, market-related dependence of suppliers reflects their lack of alternative options to replace their customers because dependence is so great that it creates lock-in situations. Thus, suppliers have no alternative other than to maintain the existing business relationship with their more powerful customers (Harrison et al., 2012). Accordingly, we hypothesize:

H4: Suppliers’ dependence on customers will moderate (weaken) the negative association between customers’ unfair business practices and suppliers’ intention to continue the relationship with their customers.

H5: Suppliers’ dependence on the customers will moderate (weaken) the negative association between customers’ socially irresponsible practices and suppliers’ intention to continue the relationship with their customers.

In contrast to harmful actions by customers, benefits to suppliers obtained in the relationship will tend to promote positive reciprocity. Here we consider the boundary condition of the material benefits provided by the customer to the supplier (e.g., long-term and profitable business from high volume purchases, opportunities for opening new markets, and image or reputation as suppliers to ‘big customers’). Indeed, rather than exiting a relationship a stream of research suggests that tolerating unethical behaviors can be an alternative response because the potential benefits derived from the relationship are perceived to be too great to lose (Lee, 2022b). As such, the suppliers’ decision in terms of rejecting or tolerating their customers’ opportunistic behaviors can be influenced by self-interest (Wathne & Heide, 2000).

We argue that suppliers might be willing to endure customers’ unfair business practices, because of the benefits derived from customers may compensate for the mistreatment or loss suffered (Hill et al., 2009). Specifically, the benefits derived from customers can weaken the negative effect of the customers’ unfair practices on the suppliers’ intention to continue the relationship. Indeed, it may be the case that the benefits outweigh the loss and the perceived mistreatment suffered by suppliers. Hence, we hypothesize:

H6: The benefits derived by suppliers from the relationship with customers will moderate (weaken) the negative association of customers’ unfair business practices with suppliers’ intention to continue the relationship with their customers.

Likewise, the benefits obtained from relationships with unethical customers could also induce suppliers to ‘close their eyes’ to customers’ socially irresponsible practices. In this circumstance, we draw upon the concept of bounded ethicality. Chugh et al. (2005) introduced the concept of bounded ethicality to refer to situations where people make decisions that are inconsistent with their own consciously espoused beliefs and preferences. In other words, individuals will not always choose to do the ‘right thing,’ and instead, in these instances, their decisions are bounded by other cognitive factors. There are different manifestations of bounded ethicality. Gino et al. (2010) have identified ‘motivated blindness’ whereby one party ignores, or has more difficulty identifying, unethical actions of another party when they have a vested interest or an incentive to view the other party in a favorable light. Thus, the benefits derived from the relationship with a customer may ‘blind’ the supplier to their socially irresponsible behavior. As a result, this blindness may obscure the customer’s socially irresponsible practices, hence reducing their intention to exit their business relationship. Accordingly, we offer the following hypothesis:

H7: The benefits derived by suppliers from the relationship with customers will moderate (weaken) the negative association between customers’ socially irresponsible practices and with suppliers’ intention to continue the relationship with their customers.

Methods

Sample and Procedures

This study utilized an online panel survey of a sample of small-to-medium-sized enterprises (SMEs) in Australia. We followed the definitions of SMEs from the Australia and New Zealand Standard Industrial Classification (ANZSIC) classification (see Table 1). The cross-sectoral nature of our sampling design aimed to achieve representativeness of our results. The unit of analysis was the firm and the targeted respondents were managers or senior managers who manage relationships with their customers (e.g., marketing, negotiation, sales, etc.). The use of a single respondent design is appropriate, as this protocol is common in SME research in the supply chain field: for example, the studies by Kull et al. (2018), Montabon et al. (2018), and Krause et al. (2018).

Table 1 Demographics of the sample
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The data were sourced from Qualtrics, a research company that provides researchers with targeted samples to collect data. There has been a growing trend in the use of online panels to recruit participants (Andon et al., 2018; Brandon et al., 2014; Kuiper et al., 2023; Lee, 2022; Schwepker et al., 2021; Spielmann, 2021). Research has found that online panel data are similar in quality to data obtained through traditional organizational samples (Porter et al., 2019). For example, the measures from online panels have been found to have psychometric properties and construct validities comparable to conventionally sourced samples (Courtright et al., 2016; DeCelles et al., 2012; Walter et al., 2019). In addition, the sensitivity of the topic investigated in this study (i.e., reports on the unethical practices of customers) supports the rationale for using online panel data, as it can be difficult to gather such data through conventional surveys of managers in organizations (Porter et al., 2019).

We included participants who met the following criteria at the time they completed the surveys: senior managers or owners from small-to-medium-sized business organizations in Australia with fewer than 200 employees. Participants from the Qualtrics panel were recruited from a variety of sources and were compensated differently (e.g., obtaining points for gift cards). In total, 506 responses were collected with no missing data. We screened the responses and found no careless responses in terms of “straight line” responses (Meade & Craig, 2012). Prior to commencement, the study was approved by the university human research ethics committee and all respondents were assured of confidentiality and the voluntary nature of participation.

The demographic profile of the sample is presented in Table 1. Around 30% of suppliers were small firms (fewer than 20 employees) and the other 70% were medium-sized firms (between 20 and 199 employees). We removed from the sample micro businesses with fewer than five employees. For the major customer, around 70% were small-to-medium-sized firms and nearly 30% were large firms (200 or more employees).

Measures

Multi-item scales (all measured using a 5-point Likert response format) were used for collecting data on the focal constructs used in this study. In completing the measures, respondents were asked to focus on their company’s major customer, who was defined as the customer who contributes to the highest proportion of the revenues of the company.

The 6-item scale measuring customer’s unfair practices was adapted from Carter (2000) and captures a range of opportunistic behaviors (Kelly et al., 2018), including using obscure contract terms to gain advantage over suppliers, overestimating demand to gain volume discounts from suppliers and delaying payments to suppliers. The customer socially irresponsible practices scale (also with six items) was adapted from Lin-Hi and Müller (2013), which includes polluting environments with their products and processes, unfair wages for their workers, price fixing with competitors, and being involved in child labor.

The 3-item scale measuring supplier dependence on the customer was adapted from Huo et al. (2016) and includes the difficulty of replacing the major customer as well as the high cost in switching from the major customer. The scale measuring the benefits enjoyed by the supplier from the relationship with the major customer (four items) was derived from Kumar et al. (1992). The scale captures different benefits, for example, generating high revenue, market penetration, and reputational benefits.

The scale for supplier’s intention to continue the relationship with the major customer was measured with four items adapted from Ghijsen et al. (2010), and it includes the intention to continue the business with the major customer and to keep the good relationship with the major customer as a long-term alliance.

In addition to the five key measures above, we also include a 3-item scale measuring supplier performance that was taken from Ward and Duray (2000). The measure includes three key performance indicators, namely sales, profitability, and market share, and the scale served as a control variable.

Results

Scale Validity and Reliability

Confirmatory factor analysis (CFA) was used to validate all five multi-item scales used in this study simultaneously, and the results are presented in Table 2. All fit indices support the unidimensionality and convergent validity of the measures (Bagozzi et al., 1991). The five scales also showed good reliability, as indicated by the construct reliability, which exceeded 0.70. The average variance extracted (AVE) values were also very close to 0.5 or above, as recommended by Fornell and Larcker (1981).

Table 2 Scale validity and reliability
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We performed Harman’s single factor test for examining common method variance (CMV) by conducting an exploratory factor analysis with all the scales’ items to extract a single factor (Podsakoff & Organ, 1986). The results of this test showed that 33% of the total variance was explained by a single factor, which is well below the 50% threshold. We performed a further CMV test, using the latent factor approach, where all scale  items were loaded onto one common factor as a competing measurement model (Podsakoff et al., 2003). The results indicated that the one-factor model produced a poor fit to the data (RMSEA = 0.20, CFI = 0.83, NFI = 0.82) and most of the factor loadings show negative values, suggesting no major problems with common method bias.

By comparing the values of the square roots of the AVEs with the correlations of variables, we found that the AVEs were higher than their corresponding intercorrelations, thus supporting discriminant validity (Fornell & Larcker, 1981). We further examined discriminant validity by pairing each of the six constructs and subjecting them to two measurement models. The original (unconstrained) model allowed all the constructs to be correlated, while the constrained model fixed the correlation between the paired constructs to 1, and the difference of the Chi-square (χ2) values between the two models was calculated. Fifteen discriminant validity tests were run for the six constructs, and the results show that all Chi-square difference test values (Δχ2) well exceeded the cut-off point of 6.64, confirming the discriminant validity between the six constructs at p < 0.01 (see Table 3). The composite scores of the six constructs were then generated by averaging the values of the items of each construct. No violation of normality was found among the composite scores as the skewness and kurtosis values are within their accepted ranges of ± 1 and less than 7, respectively.

Table 3 Discriminant validity test
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Bivariate Correlations

Pearson correlations, means, and standard deviations are shown in Table 4. It is interesting to note that customer unfair business practices had no significant correlation with the benefits they provided to suppliers. This result suggests that the two are mutually exclusive, meaning that customers could engage in unfair business practices directed toward the supplier, while at the same time providing benefits to their supplier.

Table 4 Means, standard deviations and Pearson correlations
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Hierarchical Moderated Regression Analysis

A hierarchical regression analysis was used for testing the hypotheses of the research model, and the results are presented in Table 5.  All variables were z-standardized prior to the moderated regression analysis. Five control variables were included in the model, namely, suppliers’ number of employees, organizational age, performance, major customer’s number of employees, and the length of the relationships with their major customers.

Table 5 Hierarchical moderated regression analysis
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We checked for multicollinearity and the largest variance inflation factor (VIF) was 3.43, which is significantly below the cut-off of 10 and below the more conservative cut-off of 5, confirming that multicollinearity was not violated.

In terms of the regression results, both major customer’s unfair business practices toward the supplier and their socially irresponsible practices have negative relationships with the supplier’s intention to continue the relationship (β = − 0.14, p < 0.05 and β = − 0.22, p < 0.01, respectively); therefore, both H1 and H2 were supported. However, there was a significant overlap of the 95% confidence interval between the effect of major customers’ unfair practices (− 0.27 and − 0.02) and the effect of the major customer’s socially irresponsible practices (− 0.34 and − 0.09); therefore, the effects of the two practices were not statistically different from each other, negating H3.

Contrary to H4, the supplier’s dependence negatively moderates the relationship between major customer’s unfair business practices and the intention to continue the relationship (β = − 0.12, p < 0.05). To aid interpretation, we plotted the interaction using the conventional values of one SD below the mean and one SD above the mean of the moderator (Aiken & West, 1991). The resulting interaction plot is presented in Fig. 2. We found that the effect of major customer’s unfair business practices on supplier intention to continue the relationship was weaker (β = − 0.08) at lower level of supplier dependence on the major customer (1 SD below the mean), and stronger (β = − 0.32) at a higher level of supplier dependence (1 SD above the mean). These results suggest that, contrary to our hypothesis, the more dependent the supplier is on the major customer, unfair business practices of the major customer will decrease the supplier’s intention to stay in the relationship.

Fig. 2
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The interaction between major customers’ unfair practices and the suppliers’ dependence on the major customers

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Supplier dependence positively moderates the relationship between major customer’s socially irresponsible practices and supplier intention to continue the relationship (β = 0.27 at p < 0.01), supporting H5. The interaction plot is presented in Fig. 3.

Fig. 3
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The interaction between the major customers’ socially irresponsible practices and the suppliers’ dependence on the major customers

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At a lower level of supplier’s dependence on the major customer (1 SD below the mean), the major customer socially irresponsible practices show a stronger negative effect (β = − 0.49) on supplier intention to continue the relationship than when higher (1 SD above the mean; β = 0.06). However, when supplier dependence reaches close to 2 standard deviations above the mean, the effect of the major customer’s socially irresponsible practices on the supplier’s intention to continue the relationship turns positive (β = 0.31). These results suggest that a higher dependence of a supplier on the major customer will neutralize, and even reverse, the negative effects of major customer’s socially irresponsible practices on supplier intention to continue the relationship.

On the other hand, benefits derived from the major customer positively moderates the relationship between the major customer’s unfair business practices and the supplier’s intention to continue the relationship (β = 0.18 at p < 0.01), supporting H6. The interaction plot is presented in Fig. 4.

Fig. 4
figure 4

The interaction between the major customer’s unfair practices and the benefits derived by the supplier from the major customer

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When benefits derived from the major customer are low (1 SD below the mean), the effect of the major customer’s unfair business practices has a stronger negative effect (β = − 0.34) on supplier intention to continue the relationship than when benefits are at a high level (1 SD above the mean; β = − 0.05). In line with our hypothesis, these results suggest that larger benefits derived from the major customer will neutralize the negative effects of unfair business practices on supplier intention to continue the relationship.

Finally, the benefits derived from the major customer do not show a statistically significant moderating effect on the relationship between the major customer’s socially irresponsible practices and the supplier’s future relationship intention (β = − 0.06, p > 0.10); therefore, H7 was not supported.

Discussion

Discussion of Empirical Findings

Consistent with the construct of negative reciprocity in social exchange theory, our findings show that both customers’ unfair (opportunistic) business practices toward suppliers and their socially irresponsible practices had negative effects on suppliers’ intention to maintain their relationship with their customers (H1 and H2). Although some studies have looked at the opportunistic behaviors of suppliers (Gelderman et al., 2020; Hill et al., 2009), our study is the first, to our knowledge, to empirically compare the two types of unethical practices by customers: unfair business practices directly targeted toward the supplier and socially irresponsible practices that impact on the wider society. Indeed, with regard to the negative effect of socially irresponsible practices on future relationship intention, to our knowledge there are no studies that have addressed this issue from the suppliers’ perspective. However, studies have shown the detrimental effect of corporate social irresponsibility on firms, including the loss of reputation. For example, firms that engage in socially irresponsible practices may lose their employees who want to detach themselves from the bad reputation associated with these firms (Onkila, 2015; Price & Sun, 2017). We consider that a similar underlying reputational mechanism applies to our findings on the negative effect of customers’ socially irresponsible practices on suppliers’ intention to continue the relationship.

Interestingly, there was no significant difference in the magnitude of the effects of these two unethical practices, contrary to H3. This suggests that, holding everything else constant, customers’ unfair practices and their social irresponsibility provide similar motivations for suppliers to continue or exit their relationships. In other words, unfair practices that directly harm suppliers’ immediate interests and broader socially irresponsible practices are both perceived as equally serious to the continuation of buyer–supplier relationships.

Two of our hypotheses examining the role of conditioning factors on the effects of unethical customer practices on suppliers’ intention to continue their relationships were supported. Specifically, in line with RDT we found that supplier dependence neutralized (or even switched at very high levels) the effect of customers’ socially irresponsible practices on supplier intention to continue their relationships (H5). Likewise, the negative effect of customer unfair business practices on supplier intention to continue the relationship was neutralized by the benefits that the supplier derived from the customer (H6). This finding is consistent with the study by Scheidler and Edinger-Schons (2020), which found that, when retail consumers directly benefit from firms involved in unethical practices, the negativity of consumer reactions is mitigated. Our findings suggest that, in business relationships, the suppliers’ response to the customers’ unethical behaviors is largely subject to a self-interested cost–benefit analysis in the context of asymmetry in terms of power, as predicted by RTD (Wathne & Heide, 2000).

Looking at the results for H5 and H6, we can see different patterns in terms of the antecedent-moderator combinations. In H5 we see the interaction between customers’ socially irresponsible practices and suppliers’ dependence, while in H6 we see the interaction between customers’ unfair business practices and the benefits derived from these customers. The latter finding (H6) is consistent with the notion that greater material benefits obtained in the relationship will tend to lead suppliers to tolerate unfair business practices, given the benefits derived from customers may compensate for any direct financial hurt or loss suffered. The former finding (H5) is consistent with the notion that suppliers, while aware that their powerful customer is behaving in a socially irresponsible manner, may endure these unethical practices, because of their dependence in the form of high sales from the customer, high switching costs, or a lack of alternatives customers in the market. This outcome occurs, possibly even in light of the potential long-term reputational damage that may arise from a customer engaging in socially irresponsible practices.

It is surprising and contrary to RDT that supplier dependence does not weaken the effect of customers’ unfair business practices on the suppliers’ intention to continue their relationship; indeed, it strengthens the effect (opposite to the relationship hypothesized in H4). In interpreting this unexpected result, we reason that when a supplier is highly dependent on a major customer and experience unfair business practices, they are in a diabolical double bind. As a result, they may rationally and strategically choose to de-invest in terms of their intention to continue with a highly exploitative relationship, which is at variance with the notion of being trapped according to RDT. We contend that when customers engage in unfair practices, suppliers may strategically reassess their dependent relationships and seek options for separating from their more dominant partner.

It is also unexpected that the benefits derived from customers failed to have a significant effect on the relationship between customers’ socially irresponsible behavior and supplier intention to continue the relationship (H7). One plausible explanation is that, as customers’ wider socially irresponsible behavior is unlikely to have an immediate impact on suppliers’ business performance, they may not prioritize exiting these relationships, irrespective of the benefits derived from customers. The absence of the moderating effect of business benefits suggests that, unlike unfair business practices, the cost–benefit calculus is less applicable when deciding whether to continue their relationship with unethical customers.

Theoretical Implications

By considering the suppliers’ perspective, we extend theory emphasizing the role of unethical behavior on buyer–supplier relationships. Extant research has primarily viewed this issue from the customer’s standpoint; our study highlights that even small-and-medium-sized suppliers have agency and take decisions to exit relationships with customers that are unfair or socially irresponsible in their behaviors. This has important implications for future studies that integrate ethical concerns and inter-organizational relationships. We contend that ethical behavior can act as a glue to foster and strengthen buyer–supplier relationships. However, we have highlighted two important boundary conditions of self-interest (in the form of benefits) and dependence. In doing so, we have integrated SET and specifically the concept of negative reciprocity (Blau, 1964), as well as RDT, to show how suppliers’ self-interest and dependence on customers may influence their responses to unethical practices. Our findings for H5  and H6 are in line with the notion of ‘weak reciprocity,’ as suggested by Guala (2012). Importantly, weak reciprocity emphasizes that actors consider the costs and benefits of negative reciprocity in decision-making. Our findings indicate that suppliers may not retaliate in kind to socially irresponsible actions of a customer because of their dependence in the relationship. This result brings to the fore the broader industry structure and supply market characteristics that might dictate the nature of dependence relationships and result in weak reciprocity to customers’ unethical practices. In a similar vein, we find that the benefits derived from the major customer weakens the negative relationship between the major customer’s unfair business practices and the supplier’s intention to continue the relationship.

Our findings are not consistent with the dominant paradigm of “strong reciprocity,” which claims that reciprocity is not sustained by such self-serving considerations, including concerns over reputation, but instead endures through a pro-social orientation or social preferences (Guala, 2012). The notion of strong reciprocity has held considerable sway in the literature on economic relationships and is predicated on the assumption an individual will seek to reward kindness and punish hostility in their relationships, irrespective of the cost to the individual of this reciprocal behavior (Fehr & Gächter, 2000). Our findings on the different dynamics of decision to continue the relationship on the part of a supplier, based on the specific unethical practice of the customer, brings to the fore the notion of ‘contingent reciprocity.’ We believe that this is a novel theoretical contribution of this study.

Practical Implications

Our findings show that buyer–supplier relational structure and dynamics can put limits on the extent to which a supplier may act against a customer engaging in unethical practices. This calls for a careful evaluation of contractual negotiations that a supplier may have with customers that lack a strong social responsibility stance. Being in a highly dependent customer relationship may further increase dependence on the customer. This is due to decisions taken by suppliers (such as by not diversifying across multiple customers) which may cause them to rationalize continuing their relationship with the more powerful and unethical customers. In the long run, this can have a detrimental reputational effect on suppliers, as they may be viewed as accomplices by letting their customers continue their socially irresponsible behavior.

Given that the benefits accrued by suppliers from their customers can make them less inclined toward reacting to customers’ unfair business practices, this could reinforce and strengthen unfair business practices on the part of customers, thereby creating a long-term ‘negative spiral.’ An asymmetric distribution of revenue coming from different customers is a red flag, particularly when one of these customers providing a significant revenue stream to the supplier is engaging in unfair practices. Suppliers should ensure that their customer markets are diversified in terms of revenue distribution, which is a good practice in general, but particularly so if they are ensconced with a more powerful, unfair customer.

Our results indicate that, when faced with customers’ unfair business practices, suppliers are likely to respond in kind by increasing their effort towards finding alternative options and discontinuing the prevailing relationship with the unfair customer. This highlights that the dependence condition of suppliers cannot be taken for granted and encourages customers to maintain productive relationships with suppliers by upholding fair business practices. At the same time, regulators have an important role to play by mitigating unfair business practices and socially irresponsible behaviors (Campbell, 2007). A recent example is the decision by the Australian government to impose a mandatory Food and Grocery Code of Conduct for supermarkets in Australia to better protect suppliers (The Treasury of the Australian Government, 2024).

Limitations, Future Directions, and Conclusions

Our study suffers from a few limitations. First, although our study used cross-sectional data, it provided a large sample for testing interactions, which can be subject to low statistical power in much of the literature. We also note that interactions are largely immune to the effects of common method variance (Podsakoff et al., 2003). In future studies, we recommend the use of longitudinal data to capture the dynamics of customer–supplier relationships. Secondly, future studies should seek to obtain dyadic data involving both parties to capture reciprocal perspectives from both supplier and customer in their business relationships. Thirdly, future research can complement this study by looking at both the ‘bright’ and ‘dark’ side of customers’ bargaining power over suppliers and the factors that influence both sides. Fourthly, we also suggest a comparative analysis between the relationship between suppliers and customers in different industries and cultural contexts beyond Australia to understand better the dynamics of the relationship and the potential occurrence of unethical practices in the relationship. While our study focused on the firm level, we believe that inter-firm relationships are manifested in the interpersonal interactions between firm agents (e.g., sales managers from suppliers and procurement or purchasing managers from buyer). Therefore, future studies could examine the personal interrelationships in buyer–supplier relationships. Finally, in addition to examining intention to maintain/exit a relationship, future studies could look at other responses to unethical practices, including taking legal action or lodging a complaint with the appropriate authorities.

In closing, integrating the concept of reciprocity in social exchange theory with resource dependence theory, we examined the effect of customers’ unethical practices on their suppliers’ intention to continue their business relationships. Overall, our study demonstrates that intention to continue inter-firm relationships in response to unethical practices is conditioned by self-interest and resource dependence. Our study is one of the few to examine suppliers’ responses to unethical practices and our findings are consistent with the notion of weak reciprocity, rather than strong reciprocity that predominates in the literature. On the basis of our findings, we encourage re-thinking on governance in supply chain relationships. While there is no simple answer to mitigate and/or eliminate unethical practices, we call for ‘institutional reformation’ in supply chain relationships, which can empower small-and-medium-sized suppliers to be on a more equal footing when dealing with unacceptable behaviors from customers.