To Disperse or to Concentrate: Customer Concentration and Firm Performance

Abstract

Abstract: Maintaining the relationship with major customers is one of the important sources for firms to obtain competitive advantages and high profits. However, financial dependence and resource allocation for a few major customers may lead to suboptimal results for the overall performance of firms. Based on the data of A-share listed companies in Shanghai and Shenzhen from 2008 to 2017, this paper empirically tests the relationship between customer concentration and firm performance and the potential mechanism of internal and external factors on the relationship. The results show that customer concentration has a negative impact on firm performance; the relationship-specific investment and industry competition degree both aggravate the negative impact of customer concentration on firm performance; by dividing listed companies into state-owned companies and non-state-owned companies according to the ownership, the study further finds that the negative impact of customer concentration on the performance of non-state-owned enterprises is significantly higher than that of state-owned ones. The research results provide theoretical leverage and practical reference for firms to implement customer relation management and resource allocation decisions.

Key words: customer concentration, relationship-specific investment, industry competition degree, firm performance

Zhao Shan, Li Guihua. To Disperse or to Concentrate: Customer Concentration and Firm Performance[J]. Management Review, 2023, 35(2): 294-305.

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