Does Industrial Cluster Affect Supplier Firms’ Cost Structure in the Presence of Major Customers?
Chaur-Shiuh Young/Department of Accountancy and Graduate Institute of Finance, National Cheng Kung University
Liu-Ching Tsai/Department of Banking and Finance, National Chia-Yi University
Ya-Ching Chu/Department of Accountancy and Graduate Institute of Finance, National Cheng Kung University
Abstract
Taiwan has become a global supply chain base for high-tech products thanks to industrial clusters. The existing evidence suggests that suppliers bear capacity commitments due to major customers’ uncertain demand and, as a result, assume a more rigid cost structure. Therefore, this study examines whether industrial clusters affect supplier cost structures in the presence of major customers. We specifically examine whether industrial clusters mitigate the cost rigidity of suppliers driven by major customers. Using a sample of electronic firms listed on the Taiwan Stock Exchange and Taipei Exchange from 2005 to 2019, we find a positive relationship between suppliers’ customer concentration and cost rigidity. In particular, we find that industrial clusters significantly mitigate suppliers’ cost rigidity driven by major customers. Our results suggest that industry clustering provides more flexible resource sharing. Thus, clustered supplier firms can reduce their fixed cost investments for major customers.
Keywords
Major customersCost structureCost structureIndustrial cluster
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