Friendshoring: how geopolitical tensions affect foreign sourcing, supply base complexity, and sub-tier supplier sharing

Abstract

PurposeThis paper examines the influence of geopolitical tensions—operationalized as political divergence between governments—on firms’ foreign supply bases and the resulting effects on supply base complexity and sub-tier supplier sharing.Design/methodology/approachThe authors conduct panel data regression analyses over the period 2003–2019 to investigate whether political divergence affects foreign supply bases for 2,858 US firms sourcing from 99 countries and to examine how political divergence exposure impacts the supply network structures of 853 US firms.FindingsFirms reduce their supply bases in countries exposed to heightened geopolitical tensions. These supply chain adjustments are associated with increased supply base complexity and greater sub-tier supplier sharing.Originality/valueThis study highlights the importance of state relations in global supply chain reconfiguration. Political divergence between governments provides a dual-view of political risk (i.e. buyer–supplier countries), which can help firms anticipate geopolitical disruptions. While reducing supply bases in foreign countries facing heightened geopolitical tensions is intended to mitigate disruptions, these supply base adjustments are linked to increased supply base complexity and sub-tier supplier sharing, thereby exposing firms to other types of supply disruptions. Additionally, this research contributes to understanding the effects of geopolitical tensions on supply base complexity through the lenses of transaction cost economics and resource dependence theory.