Building upstream supplier capabilities for downstream customization: The role of collaboration capital

Abstract Offering highly customized products and services is an attractive strategic option for firms in business‐to‐business (B2B) markets. However, as effective customization for downstream customers requires significant reliance on upstream suppliers, capabilities of upstream suppliers become central to firm strategies to produce customized offerings. Despite the importance of upstream supplier capabilities for downstream customization , there is a scarcity of research on how firms build their suppliers' capabilities for effective customization. Building on the foundations of research streams on customization, capabilities, and collaboration, this research tests a model which illustrates that (i) upstream supplier capabilities can result in positive customization outcomes for downstream markets and (ii) a firm's collaboration capital can build upstream supplier capabilities directly and also indirectly through supplier communication. Analyses of data collected from 189 organizations that extensively engage in downstream customization reveal the role of collaboration capital—conceptualized as a higher order factor with collaboration orientation, collaborative flexibility, and collaborative communication as first‐order dimensions—in building upstream supplier capabilities for downstream customization. We conclude with a delineation of the contributions, theoretical and practical implications, and limitations of this research.