Profit or Growth? The Impacts of Supplier Dependence and Customer Dependence on SMEs’ Performance

Previous research on supply chain dependence has predominantly focused on large firms, leaving a significant gap in the literature regarding small and medium-sized enterprises (SMEs), an often overlooked but crucial sector of the economy. This study aims to address this gap by examining the relationship between supply chain dependence (i.e., supplier dependence, customer dependence) and SMEs’ performance—specifically profit and growth. We employ a multiple linear regression model with two-way fixed effects (firm and year) to analyze data from SMEs listed on China’s National Equities Exchange and Quotations (NEEQ) from 2013 to 2020, investigating the impact of supplier dependence and customer dependence on SMEs’ profitability and growth. We find that customer dependence has a significant positive effect on both SMEs’ profit and growth, while supplier dependence negatively impacts SMEs’ profit but does not significantly affect SMEs’ growth. Additionally, we conduct a heterogeneity analysis to explore how the influences of supplier dependence and customer dependence on SMEs’ performance vary based on SMEs’ characteristics, such as age, initial size, and innovation orientation. This research not only enhances the existing literature on supply chain dependence by providing insights specific to SMEs but also offers practical recommendations for improving supply chain management strategies within these firms.