Customer Concentration and SME Survival: The Role of Network Structure and Dynamic Adaptation

Yasushi Hara

No E-2025-02, TDB-CAREE Discussion Paper Series from Teikoku Databank Center for Advanced Empirical Research on Enterprise and Economy, Graduate School of Economics, Hitotsubashi University

Abstract: This study revisits the impact of customer concentration on the performance and survival of Small and Medium-sized Enterprises (SMEs) by proposing an integrated “Quantity-Quality-Structure” framework. Utilizing a large-scale panel dataset of Japanese manufacturing SMEs, we employ rigorous empirical methods—including two-way fixed-effects models with controls for export status, Cox proportional hazards models, and dynamic event studies—to disentangle the complex effects of inter-firm relationships. While the static relationship between customer concentration (Quantity) and sales growth is found to be inconsistent across industries, our survival analysis reveals a robust and critical finding: high concentration significantly increases the risk of firm exit, supporting the vulnerability tenet of Resource Dependency Theory. Conversely, simple network connectivity (Degree Centrality) acts as a powerful buffer, significantly reducing exit risk and functioning as “structural insurance, ” whereas network brokerage (Betweenness Centrality) can exacerbate risks in certain assembly industries. Furthermore, dynamic analyses of strategic change reveal that firms “decoupling” from major customers face a multiyear “danger zone” of increased vulnerability before achieving diversification. Successful growth strategies are shown to be driven not by expanding existing B2B ties, but by a strategic pivot to new market types, specifically direct-to-consumer (B2C) segments. These findings reframe the debate on customer concentration from one of performance optimization to one of existential risk management and dynamic adaptation.

Keywords: Customer Concentration; Firm Survival; Inter-firm Networks; Strategic Adaptation; SMEs (search for similar items in EconPapers)
JEL-codes: C23 L14 L25 M10 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2025-11
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Persistent link: https://EconPapers.repec.org/RePEc:hit:tdbcdp:e-2025-02

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