Diversifying for resilience: how supply base international diversification relates to supply base sustainability performance

Abstract

Abstract Recent work in international business views supply base international diversification (SBID) as an important strategy for strengthening multinational enterprises’ (MNEs’) resilience to country-level disruptions. However, it remains unclear how this resilience-oriented strategy relates to MNEs’ parallel efforts to improve supply base sustainability performance (SBSP). Drawing on transaction cost economics and the literature on supply chain governance, we argue that increasing SBID lowers MNEs’ costs of switching away from suppliers with poor sustainability performance, while simultaneously raising the costs of monitoring sustainability across heterogeneous supplier-country contexts. Together, these countervailing mechanisms suggest an inverted U-shaped relationship between SBID and SBSP. We further argue that this relationship is moderated by an MNE’s own sustainability performance, its relational embeddedness with its suppliers, and the institutional distance between its home country and supplier countries. Our analyses of 320 U.S. firms listed in the S&P 500 over the period 2010–2019 support our hypotheses. Our findings highlight the tension that MNEs face in simultaneously enhancing the resilience and sustainability performance of their supply base and indicate that SBID should be optimized rather than maximized to balance these dual objectives.