Customer Scope and Supplier Performance

Abstract

Nobeoka, Dyer, and Madhok (2002) statistically demonstrated the relationship between suppliers' performance and suppliers' customer scope; the latter was measured by (1) the number of automakers to whom components were supplied and (2) the concentration ratio of automakers (Herfindahl index) for seven Japanese automotive assemblers (automakers), using the data for 1995 on Japanese automotive parts industry. They concluded that the greater the number of customers (automakers) and the lower the concentration ratio, the higher the supplier's performance (profit-sales ratio). Min and Song 166 their performance after dividing the suppliers into two groups: (A) suppliers with three or more automaker customers and (B) suppliers with less than three automaker customers. The results show that (A) the suppliers with more customers have significantly higher performances in 1985 and 1995; however, in 2005, (B) the suppliers with less customers have a higher profit-sales ratio, although it is not significant. It is highly likely that the correlation between supplier performance and the number or the concentration ratio of automaker clients might result from a spurious correlation caused by other antecedent variables.

Strategic divergence of <i>keiretsu</i>

“…Recently, Takeishi and Noro (2017) point out diverging behaviors 3 However, according to Min and Song (2017), which are a follow-up work to Nobeoka et al (2002), analyses for the year 1985 and 1995 both came up with similar findings that having a broader customer scope positively affects firm performance; however, the analysis of 2005 did not show a significant relationship between the two factors.…”