Graduation Year

2021

Date of Submission

5-2021

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Second Department

Physics

Reader 1

Fan Yu

Reader 2

Scot Gould

Abstract

This study investigates the relationship between a supplier’s profitability and their major customers. Previous literature concerning a firm’s customer makeup and their profitability have produced two general conclusions. The first conclusion is that there is a negative correlation due to the power imbalance major customers gain over their suppliers, resulting in lower prices, overextended credit accounts, and inconsistent cash payments for the goods provided by the supplier. Other literature argues that there is a positive correlation due to mutual dependence between a customer and its supplier causing an increase in information sharing and joint actions, resulting in a higher profitability for the supplier. This study analyzed 136 firms in the electronics manufacturing industry in 2017 and found a positive and significant correlation between customer concentration and a supplier’s profitability. The analysis also found a positive but insignificant correlation between mutual dependence and a supplier’s profitability. The results suggest that gained efficiencies from greater customer concentration outweigh the effects of a disadvantageous power imbalance by major customers.

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