Does customers’ downstream market dominance affect upstream supplier profit? The counter-power role of product diversification and customer diversification
Hillbun Ho et al.
Abstract
Purpose This study aims to investigate how business customers’ dominance in the downstream market influences the profits of upstream suppliers. It also explores how suppliers’ diversification strategies – specifically product and customer diversification – moderate this relationship. Design/methodology/approach This study uses panel data from auto-component suppliers transacting with automakers in the global automotive industry. Regression analysis is conducted while addressing firm-level heterogeneity and endogeneity to test the proposed hypotheses. Findings The results show that suppliers earn lower profit margins when transacting with automakers that hold large market shares in the global auto market. Moreover, product diversification reduces the negative effect of customer dominance on supplier profit margins, while customer diversification unexpectedly amplifies it. Originality/value This study offers novel insights into the power dynamics in industrial marketing relationships. It extends resource dependence theory by demonstrating the effectiveness of diversification strategies suppliers use as a counter-power apparatus to lessen dependence on customers with dominant positions in the downstream market.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.