Concentrate or disperse? The relationship between major customer concentration and supplier profitability and the moderating role of insider ownership

Kiho Kwak and Namil Kim

Journal of Business Research, 2020, vol. 109, issue C, 648-658

Abstract: Suppliers are concerned about the extent of customer concentration, which creates supplier’s operating efficiency (benefit) as well as major customer’s bargaining power (cost). When these suppliers are SMEs with resource deficiency, they are more concerned with how to balance this trade-off. Regarding the problem, we study the relationship between customer concentration and supplier profitability and the moderating role of insider ownership, the fraction of equity owned by firm’s insiders, on the relationship. We find that concentration by major customers has a U-shaped relationship with supplier profitability, and this relationship is attenuated as insider ownership increases. This implies that insider ownership can attenuate the bargaining power of major customers and strengthen the operating efficiency of suppliers. Our findings provide relevant evidence on the costs and benefits of concentration by major customers as well as theorize the moderating role of insider ownership from the perspectives of interest alignment and collaborative relationship marketing.

Keywords: Bargaining power; Major customer concentration; Operating efficiency; High-tech industrial sectors; Insider ownership; Supplier profitability (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:109:y:2020:i:c:p:648-658

DOI: 10.1016/j.jbusres.2019.09.033

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