How to deal with customer and supplier concentration to attain sustainable financial growth? The role of business strategy

Abstract

AbstractFor effective supply chain management, firms should focus on the relationship with their immediate stakeholders in the supply chain, namely, suppliers (upstream) and customers (downstream). This study investigates the impact of customer and supplier concentration as well as business strategy on sustainable financial growth, using financial data of 2021 Chinese non‐financial firms listed from 2006 to 2020. Additionally, it explores the moderating effect of business strategy on the relationship between customer and supplier concentration and sustainable financial growth. We find that higher customer and supplier concentration weakens the bargaining power of Chinese firms, which reduces their financial growth. However, an appropriate business strategy can help such firms achieve sustainable financial growth. We find that an aggressive business strategy moderates the negative impact of supplier concentration, while a defensive business strategy moderates the negative impact of customer concentration on financial growth. Finally, our results for the direct impact of customer and supplier concentration as well as business strategy hold for state‐owned and non‐state‐owned firms. However, we find differences regarding the moderating impact of business strategy between state‐owned and non‐state‐owned firms. Our results are robust to time and industry fixed effects, alternate proxies of financial growth and regression techniques.