This study explores from the perspective of Social Capital Theory the effect of internal communication and employee satisfaction on supply chain integration; supply chain integration being comprised of internal and external integration with trading partners. The data for this study are from an emerging market context and as such may yield insight in contexts where markets are evolving rapidly. Structural equation modeling is used to analyze survey data collected from 214 China based manufacturers.

The results reveal that internal communication has a significant positive effect on employee satisfaction and that internal communication and employee satisfaction significantly influence internal integration, which subsequently affects external integration. Furthermore the analysis reveals that employee satisfaction partially mediates the relationship between internal communication and internal integration.

The findings also indicate that internal communication has a direct and positive effect on external integration, while employee satisfaction only indirectly affects external integration through internal integration. Specific implications include the following. Managers should not focus on employee satisfaction exclusively, but rather should work on communicating with employees as this both facilitates improved satisfaction and integration both internally and with trading partners. Effective communication in conjunction with satisfied employees is requisite for improving firm performance in the coordination of material, information, and money. However, they are cautioned that while employee satisfaction can act as a road block to integration it cannot act as an accelerator and as such excessive effort or investment toward that end are not recommended.

Lastly, it may be as important to carefully craft communication campaigns aimed at employees as those aimed at customers since the former appear to lead to more effective integration with customers, which elsewhere has been linked to improved financial and market performance.