Supplier-base concentration and efficiency: the moderating roles of R&D expenditure and market share

Abstract

PurposeThis study addresses an important research question regarding how supplier-base concentration affects buyer efficiency. Drawing on the contradicting views of transaction cost theory (TCT) and resource dependence theory (RDT), the authors explore the main effect of supplier-base concentration on buyer efficiency and how this effect is contingent on buyers' characteristics (i.e. research and development (R&D) expenditure and market share).Design/methodology/approachBased on data collected from the Chinese manufacturing firms listed on National Equities Exchange and Quotations (NEEQ) between 2015 and 2019, the authors use a fixed-effect model as well as a two-stage least squares model to test the predictions.FindingsThe authors find that supplier-base concentration has a positive effect on buyer efficiency. In addition, when a buyer has higher levels of R&D expenditure and market share, the positive relationship between supplier-base concentration and buyer efficiency is strengthened.Originality/valueThis study contributes to a better understanding of the effect of supplier-base concentration. First, the authors provide theoretical and empirical evidence of the positive effect of supplier-base concentration on buyer efficiency. Second, the authors reveal the underlying mechanism of how to counter the potential drawbacks and benefit more from supply base reduction by introducing R&D expenditure and market share as contingencies.