Growing, learning, and connecting: Deciphering the complex relationship between government customer concentration and firm performance
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Wiley
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3/31/2024
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The interplay between a firm's customer portfolio and the firm's performance presents a theoretical conundrum that challenges traditional supply chains. In particular, the role of government customer concentration-how extensively a firm incorporates government entities as part of its customer base-emerges as a pivotal factor with the potential to both bolster and burden firm performance. Analyzing 3,643 firm-year observations from the U.S. Federal Procurement Data System-Next Generation, Compustat, and FactSet Revere reveals an inverse U-shaped relationship between government customer concentration and firm performance. Excessive or insufficient government customer concentration adversely impacts performance, suggesting that a strategic balance is essential. Firm size, absorptive capacity, and network embeddedness are crucial in navigating this complex relationship, guiding a firm toward optimizing its government customer portfolio. This research advances the discourse on customer base management, underscoring the essential strategic considerations for firms interacting with government buyers.
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Supply and Value Chain Management