The supply chain management literature prominently debates whether firms should adopt a concentrated customer base strategy or aim for greater diversification. This study contributes to this onging debate by introducing a crucial yet often overlooked temporal dimension to the consequences for customer concentration based on the resource dependence theory.
We tested our theoretical framework using a panel dataset of China's listed companies from 2007 to 2023. We addressed the endogeneity concerns using a two-stage least squares (2SLS) model and performed numerous tests to ensure the robustness of the results.
The results indicate that high customer concentration compels suppliers to prioritize short-term objectives of major customers over their own long-term strategic directions, thereby undermining strategic persistence. Moreover, the impact is pronounced when industry competition is higher and the level of formal institutions in a region becomes more developed.
The findings advance our understanding of customer concentration's dynamic consequences, strategic persistence, and resource dependence theory, extending prior literature on the debates about whether firms should concentrate or diversify their customer base, and drawing important implications for practices.
