The geographic extent of global supply chains: evidence from Southeast Asia

Abstract

We study the extent to which inter-firm relationships are locally concentrated and what determines firm differences in geographic proximity to domestic or foreign suppliers and customers. From micro-data on self-reported customer and supplier data of firms in Indonesia, the Philippines, Thailand, and Vietnam, we measure the distances between firm pairs, that is, the distance to the main supplier and the distance to the main customer for the surveyed firms. The distances to suppliers and customers are shorter for indigenous firms in these Southeast Asian countries; but the arm's length differs across countries. The distance between firm pairs differs widely across firms within narrowly defined industries and countries. We find that both firm-level transaction costs and capabilities affect the distances between customers and suppliers. The distance to suppliers is longer for firms that have accepted guest engineers from the main supplier to maintain production processes. Further, we find that the distances to suppliers and customers are longer for firms that have undertaken organisational change or improved marketing practices.