Friendshoring: How geopolitical tensions affect foreign supply bases and supply network structures (AOM)

Abstract

Geopolitical tensions can lead to supply disruptions for firms with foreign supply bases. At the origin of these tensions lies disagreement in global affairs between nations that can lead to national animosity and the implementation of discriminatory practices toward foreign firms. In this study, we examine the influence of geopolitical tensions—operationalized as political divergence between governments—on global supply chain reconfiguration. Over the period 2003-2019, we investigate if political divergence affects foreign supply bases for 3,201 US firms sourcing from 108 countries, and how political divergence exposure impacts the supply network structure of 934 US firms. We find that while political divergence leads firms to reduce their supply base in hostile countries, it increases supply base complexity and sub-tier supplier sharing. Our study makes important theoretical and practical contributions to global sourcing and supply chain risk management. First, we highlight that geopolitical risk in global supply chains can originate from political divergence, which recognizes potential interventions from the governments of both the buyer and the supplier. It also captures the uncertainty associated with geopolitical disruptions before their occurrence. Second, we show that while using multi-sourcing as a buffering strategy can mitigate geopolitical disruptions, it also increases supply base complexity and thus expose the firm to other types of disruptions. Last, we uncover an unintended consequence of friendshoring. As firms reduce their supply base in hostile countries, their tier-1 suppliers end up sharing more tier-2 suppliers, amplifying the propagation risk in the focal firm’s supply network.

Date
Aug 9, 2024 7:00 AM — Aug 13, 2024 5:30 PM
Location
Chicago, United States

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