PERFORMANCE EFFECTS OF COMMERCIAL DEPENDENCY FOR MANUFACTURING SMEs

The commercial dependency of manufacturing SMEs upon certain important customers or the absence of diversification in their customer base can have significant impacts upon the productivity and profitability of these organizations. Through an empirical study of 210 Canadian SMEs, it was found that more commercially dependent firms have higher manufacturing costs but lower sales and administrative costs as a percent of sales. These firms also have a lower return on investment and are perceived by their chief executive to be less profitable. In effect, commercial dependency renders manufacturing SMEs more vulnerable and increases their business risk.