The Deal Is Just the Beginning

For businesses, a major customer can be a gateway to growth, stability and new opportunities. But what happens when that valuable relationship becomes a source of vulnerability?

Take Delphi, the automotive parts manufacturer spun off from General Motors (GM) in 1999. Despite becoming an independent company, Delphi remained heavily reliant on GM for its business. When GM faced mounting financial pressures, it used its bargaining power to demand price concessions and renegotiate existing contracts. What had once been a valuable business relationship had become a source of considerable risk. So much so that Delphi filed for bankruptcy protection in late 2005.

The dilemma Delphi found itself facing is far from unique. Businesses invest heavily in developing relationships with customers: committing resources, tailoring operations, and building connections that can generate long-term returns. The success of these business relationships is built on more than economic value. It also depends on how partners work together, honor commitments, manage contractual obligations, and treat one another.

Two complementary studies explore this challenge from different but connected perspectives: how contracts, relationship-specific investments, and interpersonal dynamics shape supplier returns, and what happens when customers engage in unethical practices. Together, these studies reveal a fundamental tension at the heart of business relationships: the very investments, personal connections, and economic benefits that create value can also make firms vulnerable.

The cost of commitment

Going all-in with a major customer can strengthen a commercial relationship and give a supplier a competitive edge. But it also raises the cost of walking away. If the customer disappears, specialized equipment, employee expertise and tailored capabilities may have little value elsewhere.

Research by Daniel Prajogo, Brian Cooper and Ross Donohue of Monash University, and Anand Nair of Northeastern University, sheds light on how this vulnerability develops. (Nair is a Fall 2026 Fulbright Scholar at Smith School of Business.)

The researchers surveyed 506 managers and senior managers at Australian small and medium-sized businesses. They examined personal loyalty between supplier managers and customer representatives, as well as the frequency and nature of conflicts, including anger, friction, personality clashes and tension. They also investigated how these relationships affected suppliers’ customer-specific investments — such as tailored systems, specialized training and dedicated equipment — and the legal contracts intended to protect them.

The findings highlight the role of formal agreements. Contracts spell out expectations, responsibilities and commitments, helping suppliers protect the investments they make to serve a particular customer. They also partly explain how those investments translate into benefits for suppliers. 

When business gets personal

Contracts, however, are only part of the story. Although business relationships exist between corporations, people do the day-to-day work of sustaining them. Procurement managers negotiate with sales managers; operations executives work with plant managers. Over time, these relationships can become close and trusting. 

The researchers found that personal loyalty could help suppliers protect their investments. When supplier and customer representatives felt loyal to each other, suppliers were more likely to formalize their commitments when making customer-specific investments. A close relationship helped get the deal down on paper. 

Once the contract was in place, however, loyalty had the opposite effect. The stronger the personal bond, the weaker the link between formal contracts and the benefits suppliers gained from them. One possible explanation, the researchers suggest, is that people who trust each other are more inclined to rely on informal understandings and flexibility than to enforce every contractual provision.

Conflict reverses that dynamic. When relations between representatives become strained, contracts take on greater importance as a way to protect each party’s interests and ensure the relationship delivers its intended benefits. 

The researchers describe personal loyalty as having a “dual role”: it helps encourage formal commitments at the outset, but can weaken the effectiveness of those contracts once the relationship is under way. Trust may grease the wheels of a partnership, but it can also make people less inclined to use the safeguards they have put in place.

When a customer crosses the line

Even the best contract and the closest personal relationship cannot guarantee fair treatment. And when a customer starts behaving badly, a supplier that relies heavily on its business may have little room to manoeuvre.

A second study by the same researchers examines what happens when customers behave unethically. Using the same underlying data set, the team distinguished between two kinds of misconduct. Unfair business practices directly disadvantage suppliers; these are tactics such as delaying payments, inflating demand forecasts to secure volume discounts, cancelling orders mid-production or renegotiating existing contracts. Socially irresponsible practices, by contrast, harm other people or society, through conduct such as poor labour practices, price fixing or environmental damage.

Both types of misconduct were associated with a lower willingness among suppliers to continue the relationship. But the extent to which suppliers depended on their customers produced a surprising difference. 

When customers acted irresponsibly toward society or the environment, suppliers that depended heavily on them were less likely to end the relationship. In some cases, greater dependence was associated with an even stronger willingness to stay despite the customer’s behaviour. 

Direct unfairness produced a different result. When customers acted in ways that hurt suppliers’ own financial interests, those more dependent on the customer were even less willing to continue the relationship.

Why would suppliers with the most to lose be less willing to tolerate direct mistreatment? One possibility, the researchers suggest, is that exploitation makes the cost of staying impossible to ignore. A supplier may need the customer’s business but recognize that the relationship is becoming untenable. That realization may prompt it to start looking for alternatives rather than accept the situation indefinitely. 

The benefits of the relationship also matter. The researchers considered what suppliers gained beyond sales, including access to markets, competitive advantage and the reputational boost of serving a major brand. When those benefits were substantial, the negative effect of unfair treatment on suppliers’ willingness to stay largely disappeared. When the benefits were limited, unfair practices more clearly eroded their willingness to continue. 

Those broader benefits did not produce the same tolerance for socially irresponsible behaviour. The researchers suggest that the difference may lie in how immediate the harm feels: a late payment hits a supplier’s finances directly, while a customer’s environmental record may seem more distant from its day-to-day business.

The danger of getting stuck 

The researchers warn that the combination of relationship benefits and unfair practices can reinforce itself, creating what they call a “long-term ‘negative spiral.’”

It is a cycle that can begin with a perfectly rational business decision: invest in winning a major customer. The investment makes the relationship more valuable, but also more difficult to replace. Dependence grows, alternatives become harder to pursue, and the supplier may find itself tolerating treatment it would have once rejected. 

Delphi’s experience offers a stark reminder of where that road can lead. A major customer can be an engine of growth, but it should not become the only engine a supplier has.