Effect of customer concentration on firms’ operating performance during the COVID-19 pandemic

This study investigated the effect of a supplier’s customer concentration level on its operating performance during the COVID-19 pandemic. Using a large sample of publicly listed U.S. manufacturing firms, we measured abnormal changes in operating performance of the sample firms across two distinct stages of the pandemic: the disruption phase ( $ N = 2,557 $ N=2,557) and the recovery phase ( $ N = 2,454 $ N=2,454). Our regression results show that the effect of customer concentration varied depending on the phase of the pandemic. Suppliers with a concentrated customer base performed worse during the first year of the pandemic when the global supply chain experienced significant disruptions. During this disruption, firms with lower degrees of customer concentration managed their supply chain risks more effectively, resulting in higher operating performance than their benchmark firms. However, when firms entered the recovery phase, we found that a firm’s concentration level had the opposite effect on its operating performance. During the recovery phase, firms with concentrated customer bases could coordinate and collaborate more effectively with major customers, leading to improved operating performance. Based on our findings, we discuss the theoretical and managerial implications of managing the supply chain structure during its disruption and recovery.