Supply chain risks and geographical supplier distribution strategy

Abstract

This study empirically examines the impact of supply chain risks on the corporate strategy of the geographical distribution of suppliers, by employing text analysis to procure firm‐level supply chain risk data. The findings indicate that, as supply chain risks intensify, firms are inclined to opt for geographically closer suppliers. Heterogeneity studies suggest that the effect of supply chain risks on the selection of geographically proximate suppliers is more pronounced within firms characterised by intense competition, low supplier concentration, low switching costs and in non‐state‐owned enterprises. Further analysis identifies that the supply chain risks, which drive strategies for firms to utilise a geographically proximate supplier distribution, stem from various sources. Each of these sources varies in its impact on a firm's strategies. Tests of economic consequences reveal that, in scenarios of heightened supply chain risks, firms' strategic geographic adjustments in supplier selection can favourably impact their supply chain management efficiency and operational risk.