We examine whether organized crime affects firms' performance (defined using Total Factor Productivity growth) both directly and indirectly, by downsizing the positive externalities arising from the geographic concentration of (intra- and inter-industry) market-related firms. The analysis uses a large sample of Italian small- and medium-sized manufacturing firms over the period 2010-2013. The results highlight the negative direct effects of organized crime on firms' productivity growth. Any positive effect derived from industrial clustering is thoroughly debilitated by a strong presence of organized crime, and the negative moderation effect of organized crime on productivity growth is greater for smaller than for larger firms.