Customer Management in Global Markets: Theory and Evidence

Abstract

This paper studies how firms manage customer portfolios in global markets and what are the implications for export growth. Firms selling abroad need to find trading partners, negotiate bilateral prices and deal with their customers over time. However, most exporters trade with a small number of buyers and these relationships are short-lived, suggesting large costs associated with these tasks. We begin by exploring export relationships using novel data on the transactions between Bangladesh exporters and Chilean importers from 2010 to 2019. Our preliminary analysis reveals two regularities. First, the adjustment of customer portfolios, either by expanding the number of customers or by replacing them, plays a significant role in export growth. Second, exporters continuously renegotiate prices with their customers, increasing both the average and the dispersion of prices as exports increase. These patterns highlight the role of adjusting customer portfolios and negotiating prices for exporting. We rationalize these findings in a structural model of export dynamics, where firms invest in searching for trade partners, negotiate prices with customers, and choose which business relationships to keep in each period. Search efforts allow firms to expand their customer portfolios, but these additional relationships imply higher upkeep costs and firms may opt to drop some of their customers. Moreover, under imperfect competition, having a larger customer portfolio can improve firms’ bargaining position. The magnitude of search and upkeep costs, as well as the degree of market power, determine the number and durability of trade relationships and therefore export dynamics. Our framework is then used to run policy counterfactuals. Since Bangladesh will graduate from the list of Least Developed Countries in 2026, we will simulate how losing preferential access to developed markets would affect export relationships. We then analyze how policies that alleviate search and upkeep costs can mitigate these effects.

Javier Boncompte

Economics PhD Candidate

I am an Economics PhD candidate at University College London. My research interests lie in Industrial Organization and Applied Economics, with a focus on studying how firms compete in the product space and their growth dynamics. I am affiliated with the Centre for Microdata Methods and Practice (CEMMAP) at the Institute for Fiscal Studies (IFS).