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The effect of a geographically dispersed supply base on downside risk: Developing and testing the N-shaped theory

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  • Lorentz, Harri
  • Töyli, Juuso
  • Solakivi, Tomi
  • Ojala, Lauri

Abstract

Globalisation, and its resultant complexity, has been called the most significant factor in the increase of supply chain risk. In this paper, we investigate the effects of supply base complexity that result from geographic dispersion and how that affects supply chain risk. Informed by several theories, an N-shaped theory for the relationship is hypothesised. A regression analysis that uses survey data from manufacturing firms operating in Finland is utilised to test the hypothesis. Contrary to our hypothesis, we find support for an inverse U-shaped association of supply base complexity due to geographic dispersion and the negative effects of supply risk. The possible causes of the result and how it can be reconciled with the N-shaped theory are discussed. Supply managers are advised to avoid international complexity creeping into supply and to engage in cross-functional discussion about the implications of supply base dispersion.

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  • Lorentz, Harri & Töyli, Juuso & Solakivi, Tomi & Ojala, Lauri, 2016. "The effect of a geographically dispersed supply base on downside risk: Developing and testing the N-shaped theory," International Business Review, Elsevier, vol. 25(4), pages 872-882.
    • Handle: RePEc:eee:iburev:v:25:y:2016:i:4:p:872-882
    DOI: 10.1016/j.ibusrev.2015.10.009
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    2. Melek Akın Ateş & Robert Suurmond & Davide Luzzini & Daniel Krause, 2022. "Order from chaos: A meta‐analysis of supply chain complexity and firm performance," Journal of Supply Chain Management, Institute for Supply Management, vol. 58(1), pages 3-30, January.
    3. Casalin, Fabrizio & Pang, Gu & Maioli, Sara & Cao, Ting, 2017. "Inventories and the concentration of suppliers and customers: Evidence from the Chinese manufacturing sector," International Journal of Production Economics, Elsevier, vol. 193(C), pages 148-159.

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