The influence of perceived host country political risk on foreign subunits' supplier development strategies

Abstract

AbstractRecent protectionist trends (e.g., trade wars, Brexit) have challenged the stability of the global supply chains (SCs) of multinational corporations. While the SC and operations management (SC/OM) literature has examined how such sources of political risk influence strategic SC/OM decisions at the global level, we know little about how host country political risk influences the SC/OM practices of foreign subunits at the local level. We conducted an exploratory, multiple‐case study of western subunits operating in China to investigate whether managers of foreign subunits in a host country perceive political risk; and if so, how they adapt their SC/OM strategic choices to reduce its impact on their subunits. Our empirical findings suggest that variations in political risk perceptions create different political legitimacy goals that subunits attempt to meet by adapting their supplier development strategies. We induct a process model and identify three archetypes of supplier development strategy—self‐centered, collaborative, and voluntary—adopted by subunits to shape their legitimacy and mitigate political risk. We contribute to the SC/OM literature by theorizing SC/OM managers' perceived political risk, showing how foreign subunits may use supplier development to influence how the host government views them, and by complementing traditional “corporate” legitimacy‐seeking strategies with new “SC/OM” legitimacy‐seeking strategies.